Goldman Sachs: US Stock Market to Rise in May-June Due to Big Tech 'This'

Record Cash Reserves Among Big Tech
Trend of Share Buybacks
Mostly Executed Over May and June

Global investment bank (IB) Goldman Sachs has predicted that the U.S. stock market could experience an upward trend from this month through next month. This is due to the expectation that share buyback activity will be concentrated during this period, particularly among major big tech companies.

According to Bloomberg on the 8th (local time), Goldman Sachs analyzed that the scale of share buybacks by U.S. companies this year will reach approximately $934 billion, about a 13% increase compared to last year ($830 billion). They expect one-sixth of this amount to be executed over the two months of May and June. Scott Rubner, a tactical specialist at Goldman Sachs, stated, “So far this year, companies have already approved more than $550 billion in share buybacks.”

This year, share buybacks by U.S. companies have been led by major Nasdaq big tech firms. Recently, big tech has accumulated record cash reserves due to regulatory scrutiny from the U.S. and European Union (EU) on mergers and acquisitions (M&A) and a preference for safe assets amid high interest rates. Compared to sectors like manufacturing, big tech generates more free cash flow but had limited uses for it, leading them to choose share buybacks as an option.

For example, Apple announced on the 2nd a share buyback plan worth $110 billion (approximately 150 trillion KRW), the largest in global corporate history. This amount exceeds what would be needed to acquire SK Hynix, South Korea’s second-largest company by market capitalization. Prior to this, Alphabet (Google’s parent company) and Meta Platforms also announced share buyback plans worth $70 billion and $50 billion, respectively.

The U.S. stock market has shown a sluggish trend over the past month due to solid economic indicators and expectations that the Federal Reserve (Fed) will maintain high interest rates for an extended period amid persistent inflation. During this period, the Nasdaq index rose by only 0.48%, while the S&P 500 index fell by 0.28%. The large-scale shareholder return policies of U.S. big tech companies are seen as a potential catalyst for stock market gains.

Goldman Sachs also pointed out various other factors that could drive stock prices higher beyond share buybacks. Momentum investors preparing to buy stocks and increased investment activity during the summer are representative examples. Additionally, Commodity Trading Advisors (CTAs), who engage in long-short betting in the futures market, must buy stocks regardless of market direction next week. With many investors weighing the timing for bottom-fishing amid recent bond price declines, Goldman Sachs analyzed that this could conversely serve as a catalyst for a return to the U.S. stock market.