By David Randall
NEW YORK (Reuters) - The sharp increase in investor equity allocations to U.S. stocks since the start of the year still has room to expand before breaching historical norms, suggesting that there may be more fuel left for the bull market, Goldman Sachs said.
The net leverage exposure to equities by hedge funds remains below the average over the last 5 years, while cash allocations held by mutual funds remains 50 basis points above their lows from December 2021, representing a potential $49 billion of equity demand, GS strategists wrote in a note on Monday.
Margin balance held by retail traders, meanwhile, is hovering close to its 5-year average and remains well below peaks hit in March 2018 and October 2021, the firm said.
The benchmark S&P 500 has gained more than 14% since the start of the year as signs of strength in the U.S. economy and falling inflation have quelled widely held fears of a recession in the second half of 2023.
Investor sentiment has shifted with the improving economy, with retail investor bullishness hitting a 1-year high of 51.4% in the week that ended July 19, according to the AAII Sentiment Survey.
Goldman Sachs maintained its year-end price target of 4,500 for the S&P 500 and its 12-month price target of 4,700.