Goldman Sachs predicted the timing of the end of the S&P 500 rally

Goldman Sachs believes that after the rapid growth of the S&P 500 index by almost 25% from the April lows, the rally will last a few more weeks. Over the past 10 years, the index yield in July has never been negative, the bank's analysts pointed out. However, the rally may lose momentum as early as August, they warned.

The rally in the S&P 500 Index will continue for a couple more weeks but will slow in August, analysts at Goldman Sachs wrote in a note, its quoted Bloomberg. 

After the collapse caused by Donald Trump's new trade policy, the broad market index managed to return to all-time highs, jumping almost 25% from its April low. According to Goldman Sachs, this was the fastest recovery from a decline of more than 15% in the index's history.

Statistics cited by the bank show that in July, the S&P 500 has shown only positive dynamics in the last 10 years.  «We are entering the strongest month from a historical point of view: since 1928, the index has shown an average growth of 1.67% in July,» - said analysts Goldman Sachs. According to their calculations, the first two weeks of July are traditionally the best period of the year for the stock market: from July 1 to July 15, the average return was 2.4%.

Goldman Sachs sees reasons for the continuation of the stock market rally not only in seasonality. As strategists at the bank's trading division note, lower volatility is helping to improve sentiment and increase capital inflows. In addition, the so-called system investors - those who make decisions based on fixed algorithms - now have significant funds that can be used to buy shares. Goldman estimates that global equity inflows of up to $80 billion are possible over the next month.

At the same time, the bank's analysts said the rally could lose momentum in August, so the bank recommends clients hedge their positions through options, writes CNBC.   

JPMorgan's trading team is also considering the upside for U.S. stocks. «We believe markets have entered a bullish phase and expect a wave of new all-time highs - especially as the budget, tax and trade deal situation becomes clearer ahead of the start of the corporate reporting season, where expectations are still clearly subdued,» the analysts said Monday, their note quotes CNBC.

Morgan Stanley's lead equity analyst Mike Wilson predicts that U.S. stock market growth will continue on a 6-12 month horizon. His target for the S&P 500 is 6,500 points, which implies a 5% gain over the next year. Wilson notes that forecasts for the average earnings of companies in the index have improved markedly in recent weeks as concerns about Trump's trade war and its negative impact on corporate earnings have eased.

Some risks for the rally to continue remain: the market's growth is provided by a narrow range of securities, especially well performing «low-quality» companies, Bloomberg writes. When such stocks rise faster than others, it can indicate excessive optimism or market overheating, as investors start buying even assets that would normally be considered risky. In addition, much depends on important macroeconomic data that is yet to be released, starting with the U.S. labor market report to be released on July 3, the agency reminds.

«The rally has led to rising returns on long positions. The Nasdaq and Russell 2000 stand out in particular - the average return on positions in these indices is approaching 5%, which creates risks of fixation in the short term and could limit further growth,» Citigroup strategists warned in a note to clients, quoted by Bloomberg.

UBS also says threats to the rally: in its assessment, investors are not yet out of the turbulence zone. The bank expects volatility to spike in the second half of the year as many trade deals between the U.S. and other countries have yet to be finalized and the conflict in the Middle East, which has also pressured markets, is only contained by a fragile truce.

Bank of America's Michael Hartnett, for his part, warned that there is a growing risk of a bubble in the stock market amid massive inflows into equities. The bank's strategists noted that all of its major client groups - institutional investors, retail traders and hedge funds - collectively withdrew $1.3 billion from U.S. stocks last week, the highest pace in a decade, BofA analysts said. Uncertainty about the sustainability of the S&P 500 rally is growing as the index approaches its most overbought level since last July,

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