Goldman Sees Extra Promoting in US Shares by way of Families in 2023

(Bloomberg) — Goldman Sachs Group Inc.’s strategists say households and foreigners could each sell US stocks valued at $100 billion next year, after making net purchases of a similar magnitude in 2022.

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The demand for equities from households, the largest source of equity purchases since 2020, turned slightly negative in the second quarter, strategists including David J Kostin wrote in a note on Friday. Comparatively high valuations for US stocks and a slowing economy will drive net selling from foreign investors, they added.

Data from the firm’s prime brokerage also show hedge fund net leverage has come down by 20 percentage points this year to 65% and mutual funds have increased their allocations to cash at the fastest pace since 2009, Kostin and team wrote. They estimate that mutual funds will sell $300 billion of US shares next year compared with an estimated $350 billion in 2022.

“Investor equity positions remain elevated vs a longer-term history and we forecast further selling in 2023,” even as hedge funds, mutual funds, and retail traders have slashed equity exposure in this year’s selloff, they wrote.

The US investment bank last month cut its year-end target for the S&P 500 benchmark to 3,600 and cut global equities to underweight over the short term, joining a growing chorus of investors arguing for more downside in the asset class due to rising real yields and the prospects of a recession.

Corporates will be the largest source of US equity demand next year, albeit at a lower pace than 2022, with potential buying of stocks worth $500 billion due to strong buybacks and weak issuance, Kostin and team wrote. Pension funds may also buy shares valued at $200 billion next year, they added.

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