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Can US equities rally again?

Goldman SachsJohn Flood, Chris Hussey
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  • The speaker anticipates that the highest velocity de-risking events seen on March 7th and 10th will not recur in the near future, though a market bottom has not yet been confirmed due to lingering uncertainty and headline risks.
  • The S&P 500 is expected to gravitate toward its 200-day moving average at 5760 by April, where significant rallies above this level are anticipated to serve as selling opportunities for aggressive investors.
  • Current market sentiment is characterized by long-only and hedge fund managers remaining "frozen" pending a potential clearing event on April 2nd, which the speaker hopes will re-engage these communities.
  • Corporate buyback flows, which dropped approximately 30% from a trillion-dollar start due to a blackout period extending to April 24th, are expected to remain in a lull for the next few weeks.
  • A massive pension rebalance is creating a $25 billion equity buy imbalance versus $25 million in bonds, with this tailwind activity expected to enter the market immediately and continue for a couple of days into April.
  • CTAs are currently short $25 billion of S&P contracts, a position anticipated to provide upward momentum as CTA demand accelerates in tandem with market gains.
  • Daily trading volume, currently at 13 billion shares, is projected to increase to between 15 billion and 17 billion shares following the April 2nd event.
  • The speaker identifies a significant downside risk in consumer staples, specifically regarding junk food and snack names facing pressure from GLP-1 overhangs and "Make America Healthy Again" initiatives.
  • Concerns exist regarding the rapid addition of European and Chinese equity exposure by hedge funds, with fears that European equities could be liquidated on a LIFO basis if market conditions deteriorate.
  • The week following the April 2nd event is characterized as one of the year's most data-intensive, including releases for China's economy, manufacturing and services ISM, tariff announcements, and jobs data, which are expected to set the market tone for the subsequent weeks.
  • Retail participants are viewed as fully reengaged, while the speaker holds a tentative bullish outlook on U.S. equities provided the April 2nd event proceeds without derailing the 5760 support level.