GOLDMAN SACHS: Lagging fund inflows can drive the stock market even higher
- The stock market is having room to run even higher this year despite a 29% gain in 2019 and warnings of a reversal, Goldman Sachs analysts wrote.
- Fund inflows are lagging the surge in US equities, leaving plenty of cash to fuel additional market records, the team said in a Tuesday note.
- The investment bank also noted that traditionally safer assets like government bonds and cash haven't yet seen "meaningful outflows," suggesting that "a large portion of positioning has still not moved into equity."
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The US stock market has surged to record highs numerous times throughout the new year, and Goldman Sachs views a few factors as fuel for driving prices even higher.
While retail investors have piled back in to the historically long bull market, mutual funds and exchange-traded funds have lagged in shifting their positioning to equities, the team of strategists including Alessio Rizzi and Christian Mueller-Glissmann said.
"This suggests that there may still be room for a more bullish rotation alongside the better growth/rates mix we expect," the Goldman strategists wrote in a Tuesday note. The gap between market advances and fund inflows is among the largest on record, the team added.
The S&P 500 is up about 2.3% year-to-date after leaping 29% in 2019. The index opened at a record high on Wednesday before paring gains, and now sits slightly below its all-time peak.
Many analysts feared a reversal in the new year after the S&P 500's best annual performance since 2013, but Goldman warned that investors holding cash in safe assets are missing out from further gains. Sovereign bonds and money markets "have not seen meaningful outflows" in the year-to-date, the strategists noted.
"This suggests that a large portion of positioning has still not moved into equity," the team wrote.
Bridgewater founder Ray Dalio similarly called for investors to flee safe-havens earlier this week. The billionaire said "cash is trash," and warned against rotating from stocks to dollars in a Tuesday interview with CNBC.
"The depreciation of the exchange rate and the printing of money over the next few years is going to be the biggest thing," he said at the World Economic Forum in Davos, Switzerland. "Cash is not gonna be good."
The investment bank isn't the only player on Wall Street that expects stocks to continue soaring through 2020. When asked by CNBC if he viewed public valuations as overpriced, JPMorgan Chase CEO Jamie Dimon noted that the bull market's continued strength is supported by the US's healthy economy, and that high prices don't equate to overvaluations.
"We've always had overpriced companies in life, and stock prices are at a high, but those prices can be justified if you have a growing economy," Dimon said.
The chief executive added that, despite nearly all assets gaining through 2019, the only sector he views as a bubble is the sovereign debt market.
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