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Goldman’s Rubner Sees Market Correction Ahead of ‘Unloved Rally’

Natalia Kniazhevich

28 June 2024 at 0:02 pm·2-min read

(Bloomberg) -- The US presidential election and its aftermath promises investors big market swings in the second half of the year, says Goldman Sachs Group Inc.’s Scott Rubner.

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The global markets division managing director and tactical specialist has been correctly bullish on US stocks in May and June, but after July 17 he is modeling a correction in the stock market — this usually means about a 10% drop for equities.

“I would be looking to trim exposure up here post July 4th,” Rubner wrote in a note to clients Friday.

August is historically a weak month for US stocks as liquidity draws down ahead of the “back to school” quiet period. But this time around, a move lower could be exacerbated by the US election. Rubner predicts a “pre-election correction” where institutional investors will be forced to sell their winning long positions and hedge into the event.

Rubner’s favorite election trade is a S&P 500 Index lookback put option — such a bet allows the holder to exercise a derivative at the most beneficial price of the underlying asset, over the life of the option.

But after the election, he models an “anti-momentum unloved rally” and expects the other 495 names in the S&P 500 Index to overtake this year’s top five outperformers, like Nvidia Corp. Instead value and small-cap stocks could beat the big tech winners.

“Regardless who wins the election, the election result is a clearing event for risk, and election returns exceed non-election years for November and December,” he wrote.

Rubner’s models show that going back to 1900, the average return for the broad-market gauge in November and December was 2.9%, versus 3.4% during election years.

The US stock market is currently on pace for its 32nd record high this year with the S&P 500 hovering around 5,500, fueled by technology shares. Wall Street traders extended bullish best on US stocks on signs of cooling inflation that reinforced bets the Federal Reserve will be able to start cutting interest rates this year.

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