American households likely to sell US$750 billion in stocks, Goldman Sachs estimates

(March 23): American households will sell US$750 billion of stocks this year in the first annual drop in demand since 2018, thanks to higher bond yields and lower savings, Goldman Sachs Group Inc strategists say.

Marking an end to years of belief in TINA — that there’s no alternative to equities — households will instead boost allocation to credit and money-market assets, the team led by Cormac Conners wrote in a note.

US households have been key buyers of stocks through the era of ultra-loose monetary policy seen since the global financial crisis. That trend saw a “significant slowdown” last year as the Federal Reserve began tightening, although households still directly owned 38% of the total US equity market, Conners said citing Fed data.

This year, “even if the recent decline in market yields persists or deepens through year-end, households would still be net sellers of stocks,” he wrote in a March 22 note.

Investors have piled into bets of higher-for-longer rates in the US this year as the Fed attempts to rein in surging inflation, driving up bond yields and fueling volatility in the stock market.

US equity mutual funds and exchange traded funds have seen withdrawals of US$51 billion this year, while bond funds have received US$137 billion, according to Goldman citing high-frequency flow data.

Goldman’s estimate for stock selling from households is based on an analysis of equity demand looking at the 10-year Treasury yield and personal savings. In an upside scenario of lower yields and a higher-than-expected savings rate, it could be as little as US$400 billion, while a bearish scenario could lead to US$1.1 trillion being dumped, Conners wrote.

He now expects foreign investors and corporations to be net buyers of stocks worth US$550 billion and US$350 billion, respectively. Pension funds will also buy a net US$200 billion, he said.