Goldman Sachs Group Inc. strategists say households and foreigners could each sell U.S. stocks valued at $100 billion next year, after making net purchases of a similar magnitude in 2022.
Household demand for stocks, the biggest source of stock purchases since 2020, turned slightly negative in the second quarter, strategists including David J Kostin wrote in a note on Friday. Relatively high valuations for U.S. stocks and a slowing economy will lead to net selling by overseas investors, they added.
Data from the firm’s top broker also shows hedge fund net leverage has fallen 20 percentage points this year to 65% and mutual funds have increased their cash allocations at the fastest rate since. 2009, wrote Kostin and his team. They estimate mutual funds will sell $300 billion worth of US stocks next year, up from about $350 billion in 2022.
“Investor equity positions remain elevated relative to longer-term history and we expect further selling in 2023,” even as hedge funds, mutual funds and retail traders have reduced their exposure to equities during this year’s massive sale, they wrote.
Last month, the U.S. investment bank cut its end-of-year target for the benchmark S&P 500 to 3,600 and cut global equities to a short-term underweight, joining a growing chorus of investors arguing for a bigger decline in the asset class due to rising real yields and the prospect of a recession.
Companies will be the main source of demand for US equities next year, although at a slower pace than in 2022, with the potential purchase of stocks worth $500 billion due to large buybacks and low emissions, wrote Kostin and his team. Pension funds could also buy shares worth $200 billion next year, they added.
This article was provided by Bloomberg News.
