Michael M. Santiago
The August jobs report falling short of expectations at the end of this week could jumpstart a correction in equities, Goldman Sachs’ Scott Rubner said Wednesday.
The August payrolls report will land on Friday. Rubner, Goldman’s global markets division managing director and tactical specialist, in a note said he’s bearish on U.S. equities starting on Sept. 16, with the second half of the month the S&P 500’s (SP500) worst two-week trading period of the year, but clients are already getting ahead of negative market technicals.
“A market correction may start to get traction if payrolls are weak on Friday,” he said. Economists are looking for 163K job additions, up from 114K in July, and a drop in the unemployment rate to 4.2%. The S&P 500 (SP500) finished higher in August following a sharp selloff spurred largely on recession fears. The index was pushed closed to, but not into, a correction.
Rubner said one downside risk for the equity market is an upcoming decline in purchasing demand by U.S. corporates. A corporate buyback blackout period starts Sept. 13, ahead of earnings reports, and 50%of corporates will enter that period. Passive demand from that group is estimated at $6.62B until the blackout period starts.
“This week is [the] peak open window for corporates,” Rubner said. “U.S. corporates have been the largest buyer of the equity market and we expect their demand to drop by 35% during the closed window.”
Meanwhile, pension funds have been reducing equity risk before the November U.S. election as they are funded at 103%.
Also, equity market exposure by Commodity Trading Advisors is skewed tothe downside over the next month, Rubner said. Futures trading managers are poised to sell $17.4B in a “flat tape” market and sell $65.6B in a down market, with sales of ~$3.7B on deck in an up market.
The S&P 500 (SP500) slipped 0.2% on Wednesday, and was up 15.7% YTD.
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