Goldman Sachs strategists noted in a report on Monday that the stock market is expected to face changes in fund flows. Historical patterns suggest that passive fund inflows will slow in August, while outflows may increase.
In the first half of 2024, the stock market's exchange-traded funds (ETFs) and mutual funds experienced the second-largest inflow on record, totaling $231 billion, and are now preparing to cope with a change in investor behavior.
In the first half of this year, passive funds attracted $436 billion in inflows, while active funds saw outflows of $205 billion, indicating a strong investor preference for passive investment strategies. This trend has resulted in significant capital flowing into the largest companies by market value, supporting long-term momentum.
However, historical data shows that August is typically the worst month for stock market fund flows, with not much expected to flow in since the capital for the third quarter has already been allocated.
The first 15 days of July marked the best two-week trading period for the S&P 500 since 1928. This period is coming to an end, signaling the close of the strongest trading period of the year. The S&P's performance in the first half of 2024 was the 15th best start in history.
Around July 17 is often considered a local peak for the month. Since 1928, this period has frequently led to a decline in August.
Based on this historical precedent, analysts predict a potential stock market adjustment in late summer. Additionally, the first half of August is typically the fifth-worst two-week period for the S&P 500 since 1950.
