There’s a tactical opportunity to buy the dip between now and the September FOMC meeting. That assumes, of course, you haven’t already missed the bulk of the upside. There’s barely any “dip” left to buy.
The early August equity selloff and vol spike were an no-brainer fade. I explained why last week in “Should’ve Bought The Damn Dip.” By now, with ES1 up nearly 10% off the intraday August lows, it might be too late.
But, as Goldman’s Scott Rubner explained on Monday, systematic re-leveraging and the corporate bid are likely to overwhelm sellers in the near-term. The discretionary crowd could get swept up in mechanical re-risking and buybacks, which is to say fundamental investors may be forced in. Buyers are higher.
If you’re curious as to the magnitude of the corporate bid, Goldman’s buyback desk saw nearly twice 2023’s demand last week, and even more than that the week prior, Rubner noted, adding that this is a seasonally strong time of the year for repurchase activity. The August-September window typically sees more than 20% of annual executions (see the inset in the chart below).
And yet, the next earnings blackout period starts on September 13. Not coincidentally, the seasonal turns very challenging for stocks shortly thereafter. As the red-shaded area in the figure shows, the second half of September is the single worst two-week period of the year for stocks.
Rubner, in his own words, “will not stick around” for that rough seasonal at the end of next month. But that doesn’t mean he’s bearish on the rest of the year. The opposite, actually.
As some of you are surely aware, the end-of-year seasonal’s quite favorable. You can see that in the chart too (green-shaded areas), and if you look back at the inset, you’ll note that November-December sees the most buyback executions. Rubner on Monday suggested the S&P could hit a new record near 6,000 by year-end thanks to those two months.
Of course, there’s an election between now and New Year’s. Typically, stocks don’t trouble themselves too much with US presidential elections but… well, suffice to say this time could be different.
