MARKETS SPECTATOR: Goldman says buy, buy, buy

It's been an interesting week for markets, both domestically and globally. So far the domestic bourse has ended the week almost as it started, down 0.1 per cent, while the S&P 500 in NY is down 1.9 per cent as of Thursday's close.

It's a bit of a stalemate at the moment. There are a lot of participants willing the market lower, especially in the US, yet we're not exactly seeing huge amounts of selling pressure. It looks like those already long are willing to sit tight and ride out any minor correction simply because they believe the market is going higher in the medium term.

The crux of the problem, both locally and offshore, is that there is just so much cash sitting on the sideline and in bonds. Most participants calling for a pullback actually missed out on the recent performance and are looking to get on board at better prices. Hence the reason they're peddling the bearish rhetoric.

Either way, there is a lot of money going to come into this market.

That may happed if the market pulls back, triggering investors' desire to get in at reasonable prices. If that's the case, a decline will be shallow and relatively short lived.

If the market continues to rise as it has done over the last quarter, traders will be forced to jump in for ‘fear of missing out' (FOMO). At some point they have to justify their positions against the benchmark index, and they don't want to be caught any further behind the eight-ball.

Goldman Sachs Australia also supports this view. They said they've been wrong on the market for the last few weeks as have been waiting for one more short and sharp selloff. Goldman thinks this would be the "trigger” to get very long for a sensational December quarter rally that they believe could be very big.

The only problem is that they've been patiently waiting for this last illusive selloff. Every day they look at the market they become even more confident that the 4th quarter rally will be quite remarkable.

Goldman believes that if we get a sell off then buy it, and if we don't then buy it anyway.

Goldman also noted that it's been five years on November 1 since the Bull market finished.

The 1970s bear market went for five years & the post 1987 crash bear market lasted five year as well.

Both rallied after five years but at the time, many thought the rallies were just more bear market bounces, as there was simply too much bad news for the rallies to be sustained.

Goldman believes we are going to "climb the wall of worry". They haven't felt this positive in four years.

It may not be a straight line up but rather more a more slow and gradual one. Eventually those in cash will chase and chase this market.

The other interesting thing to note is the November and December performances in election years. The US does have a history of rallying strongly during this event.



Source – Goldman Sachs

As you can see in the above table, the S&P 500 has rallied 87 per cent of the time during the fourth quarter of an election year. The average gain has been 3.5 per cent.

So whilst there are plenty of negative headlines still dominating the globe, the market isn't paying attention to them. Rather than viewing the problems as unsurmountable, it's seeing solutions and an improving economy in the years ahead.