In what comes as a very worrying announcement for investors, Goldman Sachs has just said that it may be time to cash out of equities. Goldman says that the current mass rotation out of equities and into bonds mirrors what happened before the Crisis. “Decelerating US economic growth, trade and geopolitical uncertainty, and near-record high starting equity allocations have likely contributed to the rotation from equities to bonds and cash this year”, says Goldman. Any steadiness in equities will probably just be artificial. “The peak in buyback activity arrived in 2018 after the Trump administration’s tax cut fueled a wave of repurchase programs. Buybacks are projected to fall 15% in 2019, and drop another 5% in the following year”, Goldman said.
FINSUM: In principle this seems like a sound assessment. The problem is that all the worries Goldman is citing have been on the table for a while and yet stocks have been rising.
Retail investors are fleeing the stock market, yet it keeps rising. What gives? Bernstein Research just studied this situation and had some interesting findings. Firstly, retail investors’ rotation of out stock funds and into bond funds has been the largest in history, with $1.1 tn flowing out of stocks and into bonds in the last 12 months. Secondly, they found that none of that really matters given the current state of markets, which are being driven by buybacks and M&A. Finally, they found that such outflows are usually a very bullish sign and they generally signal over-pessimism and have often been followed by great returns.
FINSUM: This seems like a very solid counter indicator that things might start turning more positive.