According to Yahoo News, Goldman Sachs Group Inc. tactical specialist Scott Rubner has warned of a potential pullback in stocks as the factors that fueled November's rally are quickly dissipating. The S&P 500 experienced its second-best November in 40 years, but Rubner believes the dynamics behind 'the everything rally' have run out of gas. The stock market euphoria was primarily driven by a shift in expectations surrounding Federal Reserve policy moves, with traders betting on a 70% chance of a rate cut in the first quarter. This led to a rush toward equities by commodity trading advisers (CTAs), who take long and short positions in futures markets based on asset price momentum.
Rubner highlighted the $225 billion in buying during the past month, calling it the fastest increase in exposure ever seen. However, he noted that CTAs now have an asymmetric skew to the downside, as they would only buy $58 billion in an upward move, while potentially offloading $210 billion in a downward swing. In early November, Rubner accurately predicted a strong year-end rally, stating that 'the pain trade is to the upside.' In his recent note, he mentioned that volatility control funds and passive global equities have also increased their exposure to stocks, with the latter attracting over $48 billion of inflows. With the S&P 500 Index nearing 4,600 points and no bears left in the market, Rubner suggests that it 'makes sense' to add portfolio hedges.