- Goldman Sachs said a record $7.3 trillion in money market funds could soon be reinvested elsewhere.
- The bank’s trading desk highlighted that strong seasonal factors in July will drive the market higher.
- “Given future capital flows and random market movements, the hurdles to shorting stocks at this point are very high.”
A recent note from Goldman Sachs’ trading desk predicts a “wall of money” will hit the stock market this summer, driving stock prices to all-time highs.
Goldman Sachs Managing Director Scott Rabner said in a note that there is a record $7.3 trillion sitting in money market funds, most of which is expected to flow into stocks.
“My hunch is we’re going to see big outflows from the money markets,” Rubner said.
This could be especially true if the Federal Reserve were to start cutting interest rates, which is expected to happen at the Federal Open Market Committee’s September meeting based on federal funds rate futures data.
If the Fed cuts interest rates, money-market fund cash yields should fall from current levels of about 5%, which could prompt investors with large amounts of cash to look for other investment options.
But Rubner said he believes the start of July is likely to see large inflows into the stock market because it marks the start of the third quarter and the second half of the year.
That period usually coincides with when passive equity models purchase shares.
“The new quarter (Q3) and half (Q2) are a time of rapid inflows into the equity market,” Rubner writes. “Every July, roughly 9 basis points of new money is pumped into the market. July inflows are estimated at $26 billion on $29 trillion in total assets.”
The surge in new money that could flow into the stock market in July would coincide with a historically strong bull market.
Rubner highlighted that the first 15 days of July were the busiest two-week period of any year since 1928. The busiest trading day of the year was the first week of July, and July itself was a very good month for stocks.
“This statistic is astounding for the NDX over the past 16 years, as the NDX has posted 16 consecutive positive July years with an average return of 4.64%,” Lubner said of the Nasdaq 100.
It’s a similar story for the S&P 500, which recorded its ninth consecutive positive July result with an average return of 3.66%.
Shares are already trading at all-time highs, and Rubner expects the rally will propel the stock market to new highs.
“Given future capital flows and random market movements, the hurdles to shorting stocks at this point are very high,” he said.
