Goldman's Kostin: Expect pullback in 4-6 weeks

S&P 500 heading to 2,100 by year end: Goldman Sachs
S&P 500 heading to 2,100 by year end: Goldman Sachs   

U.S. stock markets will experience a pullback from their record highs at the end of February, according to David Kostin, Goldman Sachs' chief U.S. equity strategist, who believes that fund managers have become too bullish on the market.

Citing data from the U.S. Commodity Futures Trading Commission (CFTC), published on Friday, Kostin said he believes that positions have grown "extreme" in the past five weeks — but he did say the S&P 500 could still end the year higher.

"The U.S. equity markets are likely to experience a pull-back some time in the next 4-6 weeks and that would be pretty consistent with the magnitude of an extreme reading we see in the commodities futures trading corporation data," he told CNBC Monday.

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Goldman Sachs has stated a target of 2,100 points by year-end for the S&P 500, and Kostin reiterated this again on Monday. However, the strategist also suggested that the index could reach 2,300 points if the U.S. Federal Reserve holds back on any interest rate hikes this year.

Digging deeper into the CFTC data, analysts at Bank of America Merrill Lynch called the "long" U.S. equities trade one of the most crowded trades in the world, as were positive bets on the U.S. dollar.

A team at the bank, led by strategist David Woo, said the ratio between U.S. equities versus those of the rest of the world had just exceeded the level seen in 2001 at the peak of the dot-com bubble.

"A single investment thesis has been directing global capital flows over the last two quarters – the consensus that the decoupling of the U.S. economy from the slow growth of the rest of the world will continue. As a result, the (dollar) and U.S. equities have significantly outperformed," Woo said in the note released on Monday morning.

Fed hike in September?

David Kostin, chief U.S. equity strategist at Goldman Sachs Group.
Scott Eells | Bloomberg | Getty Images
David Kostin, chief U.S. equity strategist at Goldman Sachs Group.

Profit margins for U.S. corporates are likely to remain flat, according to Kostin, which he believes will help markets grind higher during the course of this year. However, he also said the Fed will raise interest rates in September this year, which could cause indexes to "fade" at the beginning of winter.

"I think net-net you are looking at a market that is not going to trade a whole lot higher than where we are now," Kostin said.

The bull market for stocks is currently in its sixth year, following the global financial crash of 2008. A wave of global liquidity from central banks has helped to prop up developed economies in recent years and has been the main driver behind stock markets, according to many economists.

Cheap oil will be an earnings boost: Goldman Sachs
Cheap oil will be an earnings boost: Goldman Sachs   

Markets experienced a highly volatile first week of trade for 2015, with investors focusing on the slide in oil prices, political uncertainty in Greece and policy moves by global central banks. Stocks on Wall Street ended Friday's session lower after a jobs report in the U.S. showed that hourly earnings declined.

Nonetheless, most analysts expect the S&P 500 to tick higher this year from its closing level of 2,044.841 points on Friday. Canadian investment bank, RBC Capital, project a 2015 year-end target of 2,325 points, driven by a "combination of earnings growth and multiple expansion."

However, Societe Generale is the more bearish with its 2015 outlook, predicting that global equity markets (including the U.S.) will suffer a "hiccup" ahead of the Fed rate hike, which it expects in mid-2015. Making the call back in November - when the index was at 2,067 points - its global strategy team forecast a fall to 2,050 points by the end of 2105, and predicted the same level for the end of 2016 and 2017 as well.