(Bloomberg) — US stocks and bonds are facing an upside risk this week as traders keep building long positions across asset classes heading into key inflation data, according to Goldman Sachs Group Inc.
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“I am starting to see some real FOMO start to develop based on incomings last week,” Goldman’s Global Markets Division managing director and tactical specialist Scott Rubner wrote in a note to clients Monday.
The S&P 500 Index hovered near 5,220 Monday after three straight weeks of gains, fueled by prospects that the Federal Reserve will eventually cut interest rates this year and resilient corporate earnings. So far 79% of S&P companies beat earnings-per-share forecasts for the first quarter, according to data compiled by Bloomberg.
Meme stocks were also revitalized with unprofitable and heavily shorted names rallying Monday as GameStop Corp. soared after Keith Gil, who drove the meme-stock mania of 2021 under the moniker “Roaring Kitty,” posted on X — generating speculation that he might be returning to social media.
“Roaring Kitty is back, the message boards are going crazy this morning,” said Rubner. “It is time for a thread.”
Wild swings in GameStop shares were fueled by call options that traders quietly gathered earlier in May.
Commodity trading advisers, funds that use systematic strategies to trade futures contracts, have already been increasing long equity positions in US stocks, according to Rubner. Total systematic equity, which includes CTAs, vol control, and risk-parity funds, show an overshot exposure, after decreasing long positions into an earlier selloff in April, he wrote.
Rubner says CTA equity and fixed-income demand is notable in the next week with a so-called “green sweep” showing up in most of Goldman’s models. This means investors will keep piling into US stocks and bonds even if the market goes down.
“I think there is upside risk to the US 60/40 portfolio this week,” Rubner said.
Without specifying the magnitude of a potential upward or downward move in the S&P 500, he noted that inflows into US stocks can be between $7.6 billion to $13.2 billion over the next week.
On top of that, as more than 90% of S&P 500 companies have reported first quarter earnings, the market is in the “peak open window” for corporate buybacks with about $5.5 billion worth of daily demand until mid-June, said Rubner.
Read more: With Fed on Hold, Corporate Buybacks Offer Stocks a Tailwind
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