- Goldman Sachs estimates that US households are likely to sell $750 billion of stocks in 2023.
- Retail investors are turning toward fixed income amid the Fed's monetary tightening campaign.
- A higher-than-expected savings rate and the rise in bond yields are driving the shift.
US households are pivoting away from stocks as the Federal Reserve continues to hike interest rates, and the shift could result in a $750 billion sell-off in equities this year, according to Goldman Sachs strategists.
A higher-than-expected savings rate and the rise in bond yields are leading the shift. Goldman economists forecast yields for the 10-year Treasury will rise 0.6% by the end of 2023, while personal savings rates will surge 0.8% in the same time.
"The rise in yields since the start of 2022 along with the recent acceleration of flows into bond and money market funds has led many investors to ask what the magnitude of household equity selling will be in 2023," the investment bank said in a note, led by Cormac Conners.
After more than a decade of low interest rates, investors are now looking towards fixed income and yield-bearing assets while the Fed continues to fight high inflation.
Households are allocating more to money-market assets and credit, according to the note. The rise in borrowing costs has hit company valuations and also left traders feeling less inclined to bet on high-growth names.
"The current level of market yields clearly shows that the era of TINA ("There Is No Alternative") has ended and that now there are reasonable alternatives (TARA) to equities," the note reads. "Although equity demand remained resilient amid sharply rising rates in 2022, we believe the YTD flows into money market and bond funds signal an escalating household shift away from equities and toward the alternatives."
American households have been a key buyer of US stocks since the global financial crisis in the mid-2000s, but this trend saw a "significant slowdown" in 2022 as the central bank began tightening. However, they still held 38% of the total US equity market.
"In the absence of household equity buying, foreign investors and corporations will be net buyers of $550 billion and $350 billion US equities, respectively," the note reads.