US households will push $350 billion into stocks this year as faster economic growth lifts demand, Goldman says

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A man sits on the Wall street bull near the New York Stock Exchange (NYSE) on November 24, 2020 in New York City.

  • Goldman Sachs lifted its forecast for 2021 US household equity demand to $350 billion from $100 billion.
  • The new level accounts for stronger economic growth and sets households up to be the largest source of stock market demand this year.
  • Corporations are set to buy $300 billion in stock as repurchase activity rebounds, the bank added.
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US households’ demand for stocks is set to rebound alongside the broad economy and even exceed corporate buying in 2021, Goldman Sachs strategists said.

Equities continue to endure volatile price swings as rising Treasury yields cut into their appeal. Pricey tech stocks and growth names have plummeted as investors shift cash to sectors most likely to benefit from a full reopening. 

The choppy price action isn’t likely to keep Americans from the market, Goldman said in a note to clients. The bank lifted its estimate for 2021 household equity demand to $350 billion from $100 billion. The new projection sets households up to be the largest source of stock-market demand this year.

The updated forecast reflects “faster economic growth and higher interest rates than we had assumed previously, additional stimulus payments to individuals, and increased retail activity in early 2021,” the team led by David Kostin said Friday. Accelerating economic growth has been the single most important driver of households’ equity purchases over the past three decades, the team added.

Corporate equity demand will also bounce back from 2020 levels. Roughly $126 billion in stock buybacks have been approved year-to-date, up 50% from levels seen at the same time last year, Goldman said. Surging profits and elevated cash balances should also prop up repurchase activity. The bank sees corporations buying $300 billion in stock through the year, up 100% from last year’s levels but 25% below the annual average seen from 2010 to 2019.

Precedent suggests the market’s wild moves precede healthy gains, the bank said. Periods of rising real rates and breakeven inflation have been the most favorable for stocks over the past 10 years. Investors’ equity allocations usually grow when interest rates tick higher, the strategists added.

To be sure, Goldman’s Sentiment Indicator currently sits two standard deviations above average, implying “extremely stretched” positioning in stocks. Such crowding will serve as a headwind to market gains, the team said. But accelerating growth should still drive the S&P 500 higher over the next two months at least, they added.

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Netflix gains $34 billion in market value after saying it will end its borrowing binge and explore stock buybacks

queen's gambit
  • Netflix stock surged as much as 15% on Wednesday after fourth-quarter earnings beat forecasts.
  • The video-streaming service added a record 37 million paid subscribers in 2020.
  • Netflix expects to generate enough cash to end its borrowing spree and potentially fund share buybacks.

Netflix shares jumped as much as 15% on Wednesday, after the entertainment titan trumpeted its cash generation and teased stock buybacks in fourth-quarter earnings that surpassed Wall Street’s expectations. The rally added up to $34 billion to its market capitalization.

The video-streaming service – the world’s largest – added a record 37 million paid subscribers in 2020, boosting its global members by 22% to more than 200 million for the first time. Its annual revenue surged 24% to $25 billion as a result, driving its operating income up 76% to $4.6 billion.

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Netflix also reduced its free cash outflow from $1.7 billion in the fourth quarter of 2019 to $300 million last quarter, and expects it will shrink to around zero this year.

The group’s bosses expect the stronger cash generation will allow them to finance everyday operations without tapping debt markets anymore. They will also explore returning cash to shareholders via stock buybacks.

Netflix counts chess drama “The Queen’s Gambit,” period drama “Bridgerton,” and season four of “The Crown” among its recent hits. It has borrowed more than $16 billion over the last decade to build its library of TV shows and movies, The New York Times said.

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The streaming company has been one of the few beneficiaries of the COVID-19 pandemic. Signups surged last year as lockdowns and travel restrictions forced millions of people to spend more time at home, and government closures of gyms, stores, and restaurants severely limited their leisure options.

Here’s a chart showing Netflix’s stellar stock performance over the past year:

Netflixstockchart_200121

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