“FOMO feedback loop” to juice the US stock market, Goldman says

The stock market’s jubilation following the US election has a long way to run, according to Goldman Sachs.

Scott Rubner, managing director for global markets, has been banging the table that US stocks will finish the year strong. He’s looking for “mechanical rebalance flows to create institutional ‘FOMO’ feedback loop into the best seasonals of the year,” according to an email to clients on November 6. “The year-end rally starts today and may be higher than investors were expecting.”

The S&P 500 is up more than 3% since the election as of midday Thursday, trending toward 6,000.

There are many classes of buyers who are primed to boost their stock-market exposure no matter what, he argues. That kind of fundamental support — and lines on charts going up and to the right — can entice more discretionary potential stock buyers to add to their holdings.

Who’s buying, per Rubner?

For starters, the unwind of election-related hedges effectively provides demand for stocks. We’ve already seen this in how much the VIX Index, which tracks the implied volatility of the S&P 500, has gone down since the vote; VIX down typically means equities up, as it entails less demand for protection against a near-term market storm.

And November 5 wasn’t just a big day for the nation’s voters, but also a big one for so-called volatility control funds — that is, investing vehicles whose level of exposure to the market is governed by how volatile the market has been over time. Any fund that uses a three-month look-back window to determine its degree of stock ownership is now seeing August 5, the day when volatility exploded to the highest levels outside of Covid and the 2008 financial crisis. So there’s a strong likelihood that these funds will be buyers of equities, because the recent past will suddenly look a lot more calm.

Another source of support for equities comes from corporate buybacks. As Rubner has long flagged, November is typically the busiest month for companies repurchasing their own shares.

These factors should drive institutional investors — who had taken some chips off the table heading into the election, per Goldman’s prime brokerage team — to reengage with a rising market, Rubner says.