The wealthiest Americans are already so heavily invested in the stock market that they are unlikely to buy as much this year as they did last year, according to Goldman Sachs.
“The equity allocation of the top 1% has risen near its all-time high, which will likely be a greater headwind to aggregate equity demand this year than in 2019,” Goldman strategists including Arjun Menon and David Kostin wrote in a note Wednesday. “We expect households will remain net buyers of stocks this year but demand will likely be lower than in 2019.”
Wealthy households typically increase their net buying of stocks after periods in which economic growth accelerates, but then reduce demand as the amount they hold increases, Goldman said. Equity allocations for the top 1% of households are in the 97th percentile since 1990, according to the report.
Advertisement
Goldman forecasts the S&P 500 will end the year at 3,400, a gain of just 3.9% from Wednesday’s close and a far cry from the 29% rally the gauge enjoyed in 2019. And the firm isn’t alone – its target for 2020 matches the median target among Wall Street strategists tracked by Bloomberg.
Other factors that have boosted stocks in recent years may not be much help either, according to the strategists. They see buybacks declining 5% this year as a result of “heightened uncertainty.” The analysts also expect rising stock prices relative to bonds to help fuel selling this year by pension funds and mutual funds.
Aggregate allocation to equities among households, mutual funds, pension funds and foreign investors has risen to 46%, ranking in the 95th percentile since 1990, according to the report.
“The fact that these four investor categories, which own almost 90% of the equity market, have limited potential to increase their equity allocations is consistent with our forecast of single-digit equity market returns this year,” the strategists said.
[More: Investors conquered fees. Next up: Their own behavior]
