Regular investors are set to dump stocks in a big way, Goldman says. Where they're going instead

Published Thu, Mar 23 20232:11 PM EDT

U.S. households will be net sellers of $750 billion in equities this year, according to a Goldman Sachs forecast. Instead, those investors will put money into credit and money market assets, analyst Cormac Conner said in a note Wednesday. High-frequency data show that $51 billion has flowed out of U.S. equity mutual funds and ETFs so far this year, while $282 billion has flowed into money market funds and $137 billion has flowed into U.S. bond funds, he pointed out. "The current level of market yields clearly shows that the era of TINA ("There Is No Alternative") has ended and that now there are reasonable alternatives (TARA) to equities," Conner wrote. "Although equity demand remained resilient amid sharply rising rates in 2022, we believe the YTD flows into money market and bond funds signal an escalating household shift away from equities and toward the alternatives." The firm came up with $750 billion by modeling demand for equities as a share of households' total financial assets in six-month periods since 1980, as compared to the personal savings rate and 10-year Treasury yield. In addition, it also tests the model against household equity demand less its estimate of hedge fund net equity demand. "Regardless of which of these household demand series we use, household equity demand tends to increase when the savings rate rises and decreases when 10-year yields fall," Conner explained. It's downside case shows household selling could total $1.1 trillion. Stocks have struggled this year as i nterest rates surged along with Federal Reserve interest rate hikes , sending some income-seeking investors into Treasurys. Yields move inversely to prices. Recently the bank crisis caused investors to flee into the safety of bonds, causing yields to drop from highs a bit. The 10-year is now yielding about 3.48%. However, Goldman Sachs economists forecast that the 10-year yield will rise to 4.2% by the end of 2023. The firm also predicts the personal savings rate will rise from 4.5% to 5.3% as high interest rates in money market funds attract those searching for income. The average yield on the Crane Data's Crane 100 Money Fund Index , comprising the 100 largest taxable money funds, is 4.42%. The $750 billion of net selling would reverse the previous six years of household equity demand, Conner said. Even if the recent decline in Treasury yields persist, households will still be selling equities, Conner said. If the 10-year yield stays around 3.4%, the firm forecasts household net selling would fall to $700 billion. However, the good news for the stock market is that foreign investors and corporate buyers are expected to be net buyers of $550 million and $350 billion in U.S. equities, respectively, Goldman's analysis found. — CNBC's Michael Bloom contributed reporting.