The bull market will get a $500 billion cash injection by year-end, Goldman says

Published Mon, Jun 21 202110:00 AM EDTUpdated Mon, Jun 21 202111:08 AM EDT

American families and professional money managers will drive demand for stocks for the remainder of 2021, plowing $500 billion of cash flows into equities through year's end, according to Goldman Sachs. The bank told clients it expects U.S. households and corporations to continue to add to their stock portfolios in the back half of 2021 amid a buildup of cash in money market funds, anemic credit yields and a rebound in retail trading. "We estimate that households currently allocate 44% of their assets to equities, slightly below the all-time high allocation of 46% in 2000. But high cash balances and continued retail participation in equity markets should bolster household equity demand," Goldman Chief U.S. Equity Strategist David Kostin said in a note published Friday. Specifically, Goldman raised its forecast for 2021 household net equity buying to $400 billion from $350 billion. Kostin noted that U.S. equity inflows are on pace for their strongest first half of a calendar year since at least 2007. Corporations should comprise the largest source of equity demand for the remainder of 2021, Goldman said, as stock buybacks accelerate and equity issuance slows from peak levels in the first quarter. While choppy in recent weeks, the U.S. stock market has been strong in 2021. The S & P 500 is up more than 11% since January, while the Dow Jones Industrial Average and Nasdaq Composite are up 9.7% and 8.6%, respectively. Those gains, already in excess of the average calendar year's return, came as investors pivoted back into stocks sensitive to the broader economy and so-called reopening trades as the worst of the Covid-19 pandemic came to an end in the U.S. Further, lower bond yields have recently helped fuel renewed interest in growth stocks , including tech names. The Energy Select Sector SPDR Fund is up about 39% year to date as a rebound in demand for travel and oil sent crude prices back toward pre-pandemic highs. While Kostin did not issue any sector-specific recommendations, he did tick off several factors that he says support his overarching bullish hypothesis. He first cited a record $5.5 trillion of cash sitting on the financial "sidelines," waiting to be deployed by fund managers. With the Federal Reserve unlikely to adjust the federal funds rate until late 2023, he argued, there's little incentive to hold cash in the near term. Goldman also categorized current credit conditions as "unattractive," with the bank's rates strategists forecasting the rate on the 10-year Treasury note to climb about 45 basis points to 1.9% by year-end. Lastly, Kostin said he expects a meaningful return of retail traders after a lull in the spring. Individual traders sparked a spike in call option volumes in January and February, fueled in part by excess savings and federal stimulus checks. While some of that trading — in names like GameStop and AMC Entertainment — drew concerns of mania, it underscored the power retail investors wield in the financial markets. — CNBC's Michael Bloom contributed reporting.

A woman counts U.S. dollar bills.

Marcos Brindicci | Reuters

The bank told clients it expects U.S. households and corporations to continue to add to their stock portfolios in the back half of 2021 amid a buildup of cash in money market funds, anemic credit yields and a rebound in retail trading.

"We estimate that households currently allocate 44% of their assets to equities, slightly below the all-time high allocation of 46% in 2000. But high cash balances and continued retail participation in equity markets should bolster household equity demand," Goldman Chief U.S. Equity Strategist David Kostin said in a note published Friday.