Goldman Sachs breaks down the 5 forces that will shape US stock-market demand in 2021 as investors put stockpiled cash to work

Graph of ownership breakdown of US equity markets from Goldman Sachs research note on October 15

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Equity allocations have rebounded to their highest levels in two years at 47% of total financial assets, just below the tech bubble peak, which sat at 51%, said Goldman Sach’s equity analyst Arjun Menon in a recent client note.

Menon and his colleagues in the portfolio strategy research team released a new report exploring existing equity demand and forecasting supply and demand for equity in 2021. The team made five concrete predictions.

The outcome of the US elections is a prominent theme across the predictions with the potential of a so-called blue wave acting as a risk factor for some predictions.

“We expect overall equity allocation will climb in 2021,” Menon said. “The increase will likely be driven, in part, by a continued rotation away from cash. Although money market funds have experienced outflows during the past month, allocation to cash remains higher than its early 2020 levels and would have to decrease by another $3 trillion to reach its recent lows, all else equal.”

Prediction 1: Foreign investors will be the biggest buyers of US equities in 2021

Foreign investors have been the largest buyers of US stocks this year. This is a trend that Menon sees continuing into next year. 

“Foreign investors bought a total of $317 billion of US stocks in 1H, driven by investors in Europe, the Middle East, and Japan,” Menon said. “Following two consecutive years of selling, investors in China were also net buyers of US stocks in the first half of 2020 (+$29 billion).”

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Foreign investors will purchase $350 billion of US equities in 2021 alongside a weakening US dollar, Menon said.

“A weaker-than-expected US dollar and reduced tensions with China could drive higher foreign investor demand for US equities than our baseline forecast,” Menon said.

However, under a “blue wave”, higher corporate tax rates in the US and increased …read more

Source:: Business Insider

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