Goldman says 'TINA trade' is alive and well, fueled by 401(k) buying

Goldman Sachs anticipates continued strength in the stock market driven by the "TINA" trade, as retirement accounts increasingly allocate funds to equities; 401(k) plans now allocate an average of 71% to stocks, up from 66% in 2013, with younger participants allocating even more. Strategist David Kostin estimates that 401(k) contributions drive approximately $500 billion in annual equity demand, and expects US households to buy $425 billion of equities this year, supported by a solid labor market and healthy household balance sheets.

Analysis

Goldman Sachs identifies the "There Is No Alternative" (TINA) trade as a continuing significant stimulant for US equities, primarily propelled by consistent inflows from retirement accounts. Data indicates that average 401(k) allocations to stocks rose to 71% in 2022 from 66% in 2013, with a more pronounced increase among participants in their 20s, whose allocation surged to 90% from 76%. David Kostin, Goldman Sachs' chief U.S. equity strategist, estimates these 401(k) contributions drive approximately $500 billion in annual equity demand. This structural demand is further supported by an anticipated $425 billion in equity purchases by US households this year, a group that directly owns 38% of the US equity market. Consequently, the S&P 500 was recently positioned just over 2% below its February peak, demonstrating resilience against trade uncertainties and geopolitical risks. Adding to the bullish case, Goldman's internal investor sentiment indicator remains in negative territory despite the recent market rally, suggesting untapped potential for further upside. The sustainability of this TINA dynamic is contingent upon the persistence of a robust US labor market, healthy household balance sheets, and the Federal Reserve maintaining its current accommodative monetary policy, conditions which Kostin notes are currently in place.

Key Decisions for Investors

• Investors should consider the ongoing structural support for US equities from retirement fund inflows, as highlighted by Goldman Sachs, when evaluating market exposure.
• It is crucial to monitor key macroeconomic indicators, specifically US labor market data, household financial health, and Federal Reserve policy pronouncements, as changes in these factors could significantly impact the TINA narrative and equity market performance.
• The observation of depressed investor sentiment despite recent market strength, as per Goldman Sachs' internal indicators, may suggest further upside potential for equities if sentiment improves towards prevailing market conditions.