US stocks: Is "smart money" withdrawing? Goldman Sachs fund flow experts warn: Longs to start reducing positions after July 4th

Before the US stock market reaches its peak next month, "smart money" may start to retreat. Scott Rubner, the Global Head of Markets at Goldman Sachs who specializes in studying fund flows, recently predicted that the overall US stock market will reach its peak by July 17th, and after the US Independence Day holiday on July 4th, the bulls will begin to reduce their exposure.

Rubner first pointed out that on Friday, June 28th, some of the most significant liquidity events of the remaining summer season occurred, including:

• The annual rebalancing of the Russell Index after Friday's close, known as one of the seven super bowls of program trading;
• End-of-month/end-of-quarter rebalancing of pension funds, with $11 billion worth of stocks to be sold during this technical supply period, which will be cleared by Friday;
• The quarterly options expiration may further reduce the gamma of the long index, with brokers holding around $60 billion of S&P 500 index gamma for every 1% move.

Rubner believes that next week will be one of the best golden trading days of the year and the best two-week trading period, as the threshold for shorting stocks remains high until July 4th. After this positive trading window closes, the market will be more susceptible to the "pre-election adjustment" effect.

Specifically, based on fund flow records from 1998 to 2022, there is an additional inflow of funds into mutual funds and ETFs in July, accounting for 9 basis points of the total asset management scale. With $29 trillion in assets, the inflow in July is $26 billion, while August and September see outflows.

In terms of median returns, the first half of July has been the best two-week trading period for the S&P 500 index performance since 1928.

Since 1928, July 3rd has been the day with the highest positive return for the S&P index (72.41%), followed by July 1st (72.06%). Other trading days in the first two weeks of July also performed well, with the S&P 500 recording positive returns for nine consecutive years in July, with an average return of 3.66%.

The last time the Nasdaq 100 index had a negative return in July was in 2007. Looking at median returns over two periods since 1983, the Nasdaq 100 has recorded positive returns for 16 consecutive years in July, with an average return of 4.64%. Some of the best trading days in the year are July 1st (91.67%), July 2nd/3rd (75%), and July 5th (77.78%).

Next Monday and Tuesday will be the first two trading days of July, with Wednesday, July 3rd, seeing an early market close, and Thursday being a full-day holiday for Independence Day.

Rubner mentioned that since 1928, July 17th has always been the peak of the stock market at that time, with a significant decline in the stock market in August. He is currently using models to predict a late summer market adjustment.

From a CTA perspective, Rubner pointed out that the key levels for the S&P 500 are 5335 points in the short term (150 points lower than the current level), 5105 points in the medium term, and 4725 points in the long term His only concern is the European debt stock market, not the S&P.

Rubner believes that by August, before the election, it is common for the stock market to experience capital outflows due to risks. August is an extremely tricky and illiquid trading month. The first half of August is one of the worst two-week trading periods for the S&P 500 in a year. He believes this will trigger a "back-to-school" Labor Day weakness