US households will push $350 billion into stocks this year as faster economic growth lifts demand, Goldman says

• Goldman Sachs lifted its forecast for 2021 US household equity demand to $350 billion from $100 billion.
• The new level accounts for stronger economic growth and sets households up to be the largest source of stock market demand this year.
• Corporations are set to buy $300 billion in stock as repurchase activity rebounds, the bank added.
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US households' demand for stocks is set to rebound alongside the broad economy and even exceed corporate buying in 2021, Goldman Sachs strategists said.

Equities continue to endure volatile price swings as rising Treasury yields cut into their appeal. Pricey tech stocks and growth names have plummeted as investors shift cash to sectors most likely to benefit from a full reopening.

The choppy price action isn't likely to keep Americans from the market, Goldman said in a note to clients. The bank lifted its estimate for 2021 household equity demand to $350 billion from $100 billion. The new projection sets households up to be the largest source of stock-market demand this year.

The updated forecast reflects "faster economic growth and higher interest rates than we had assumed previously, additional stimulus payments to individuals, and increased retail activity in early 2021," the team led by David Kostin said Friday. Accelerating economic growth has been the single most important driver of households' equity purchases over the past three decades, the team added.

Corporate equity demand will also bounce back from 2020 levels. Roughly $126 billion in stock buybacks have been approved year-to-date, up 50% from levels seen at the same time last year, Goldman said. Surging profits and elevated cash balances should also prop up repurchase activity. The bank sees corporations buying $300 billion in stock through the year, up 100% from last year's levels but 25% below the annual average seen from 2010 to 2019.

Precedent suggests the market's wild moves precede healthy gains, the bank said. Periods of rising real rates and breakeven inflation have been the most favorable for stocks over the past 10 years. Investors' equity allocations usually grow when interest rates tick higher, the strategists added.

To be sure, Goldman's Sentiment Indicator currently sits two standard deviations above average, implying "extremely stretched" positioning in stocks. Such crowding will serve as a headwind to market gains, the team said. But accelerating growth should still drive the S&P 500 higher over the next two months at least, they added.