Goldman Sachs Estimates American Households Will Sell $750 Billion In Stocks This Year

This year, Goldman Sachs Group Inc. strategists claim that American households will sell $750 billion of stocks as a result of higher bond yields and lower savings which will result in a decrease in stock demand, the first annual drop since 2018.

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In a note, the team led by Cormac Conners largely wrote that households are not going to boost their allocation to equities or credit markets as long as there isn't an alternative, thus signaling the end of years of belief in TINA - that equity is the only asset class. 

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The US households have been the main buyers of stocks during this period of ultra-loose monetary policy since the financial crisis of 2008. Although, according to Conners, household equity ownership still accounted for 38% of the US equity market despite a significant slowdown caused by the Federal Reserve's tightening last year, he said citing Fed data. 

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Despite the recent decline in market yields, he wrote in a March 22 note, "It is likely that households will continue to sell stocks even if the recent decline persists or deepens throughout the year."

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A series of bets have been made by investors this year that interest rates will rise for a longer period of time in the US due to the Fed trying its best to rein in surging inflation, which has caused bond yields to rise and stock market volatility to spike.

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According to Goldman Sachs citing high-frequency flow data, there was a $ 51 billion withdrawal from US equity mutual funds and exchange-traded funds this year, while $137 billion was withdrawn from bond funds. 

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In Goldman's estimation, the amount of stocks being sold by households is determined by analyzing the yield on the 10-year Treasury bond and the amount of money saved by households. Conners writes that it could be as little as $400 billion in the case of lower yields and a higher-than-expected savings rate, while in the case of a bearish scenario, it could be as much as $1.1 trillion. 

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As a result, he now believes that foreign investors and corporations will be net buyers of stocks over the next few years, worth $550 billion and $350 billion, respectively. Pension funds are also expected to buy stocks over the next few years, worth $200 billion.