Stocks to hit new highs in next four weeks, but investors should be cautious on key date, Goldman Trading Desk says

• Goldman Sachs’ trading desk expects stock markets to hit record highs over the next four weeks, followed by a slowdown.

• A low volatility environment and corporate share buybacks fuel Goldman’s bullish outlook through mid-September.

• “We just witnessed one of the biggest and fastest unravelings I have EVER seen,” wrote Goldman’s Scott Rubner.

Investors should prepare for new record highs in the stock market over the next four weeks, but then they should prepare to give up.

This is what emerges from a note on Monday from Goldman Sachs trading desk, led by Managing Director Scott Rubner.

According to Rubner, the stock market is entering “a very positive four-week equity trading window” which suggests that “the pain of equity trading is higher.”

“The two-week global holiday started Friday at 4 p.m. The bar for being bearish at the beach or a Labor Day barbecue is high,” Rubner said, noting that low-volatility markets, so common during the late summer weeks, are typically bullish for stock prices.

This new environment of low volatility on the stock market comes after a historic drop in the CBOE volatility index to 62%, representing the largest nine-day drop in Wall Street’s fear index on record.

“We just saw one of the biggest and fastest sell-offs I have EVER seen,” Rubner said, suggesting that professional trend followers who were squeezed out of stocks during the early August sell-off are now likely to return to buying mode.

Other buyers of shares in the coming weeks include companies that have authorized share buyback programs.

According to Rubner, with a blackout period for about 50% of companies starting on September 13, there will be plenty of stock buying between now and then.

“The August-September stock buyback period is historically strong. This two-month period is the second best of the year with 20.7% executions,” Rubner said, adding that the bank estimates about $1 trillion in stock buybacks will be executed this year.

With the S&P 500 At less than 1.4% from its record high, it won’t take much for the index to reach all-time highs in the near term.

When to sell stocks

But even though Rubner is optimistic, he still expects a volatile stock market and is not so sure about further gains after September 16.

“I’m bullish until September 16. That’s when the seasons change. The second half of September is the worst trading period of the year. I’m not going to stay there,” Rubner said.

Rubner’s call is significant given that he gave a stock market prediction right at the beginning of July, when he said stocks were poised to soar in the first two weeks of July before entering a period of volatility in the second half of the month, that’s exactly what happened.

The story continues

“The end of the second half in September will be a tricky business environment (especially before the elections),” Rubner said.

When to buy back in

While Rubner expects inventories to rise over the next four weeks, followed by a period of decline…