(Bloomberg) — Passive equity investing is set to flood the stock market in early July and keep it rallying through early summer, according to a Goldman Sachs Group Inc. trading desk.
“The new quarter (Q3) and new half (Q2) are times when a wall of money will rapidly flow into the equity market,” Scott Rabner, a managing director and tactical specialist in Goldman’s global markets division, wrote in a client note on Wednesday.
Plus, stocks should benefit from strong seasonal trends and increased retail investor involvement: “We saw retail investors re-emerge over the summer and tend to become more active again in July,” he wrote.
According to Rubner, since 1928, the first 15 days of July have been the best two weeks of stock trading all year, with a trend of declines after July 17. The S&P 500 index recorded its ninth consecutive positive month in July, with an average return of 3.7%. The Nasdaq 100 index is doing even better, recording its 16th consecutive positive month in July, with an average return of 4.6%, he noted.
By Rubner’s calculations, roughly 9 basis points of new capital is pumped into the market every July — $26 billion this year, based on $29 trillion in passive investable assets.
“The bar to shorting stocks today is very high, given upcoming inflows and random market movements,” Rubner wrote.
The S&P 500 rose above 5,300 on Wednesday, its fourth straight day of gains and nearing an intraday record, as the world’s largest technology companies boosted their stock prices. Nvidia Inc. set a new record and is the second-largest in the S&P 500 with a 6.6% weighting, ahead of Apple Inc. at 6.4% and behind Microsoft Inc. at 7%.
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