The seasonal cliché is turning: Soft inflation and EPS growth are driving a new trend

With the awareness of the old trader’s wisdom “Sell in May and go away,” the Goldman Sachs trading team believes that this rally is worth chasing, as both fundamentals and global positioning point to a convincing entry point for new long positions in US stocks.

Therefore, they suggest:

“Buy in May and let the market play”

At the risk of being called a “false start,” the recent reversal in global markets (both compared to a month ago and a week ago) significantly impacts investor sentiment. The 326 basis point rally in the SPX on Monday is a clear example, where lightly positioned participants are rushing to build long exposures.

On the “Day of Liberation” in April, we already saw what the left side of the risk distribution looks like, but since then, the index has risen by 20%, recovering the March and April decline. At the time of writing this analysis, Goldman Sachs has revised its S&P 500 forecast, raising the 12-month price target from 6200 to 6500 points, reflecting lower tariffs, better economic growth, and a lower risk of recession compared to previous expectations.

CONTEXT

Fundamentals: Far from bad

Although the focus is on risks of stagflation and the likelihood of a recession, the easing of trade tariffs and the resilience of economic data support the thesis that the US will avoid a recession.

Regarding inflation, GS lowers the expected core PCE index peak to 3.6% instead of the previous 3.8%, further justifying the forecast for three 25 basis point rate cuts. Meanwhile, core inflation for April came out at 0.24%, which triggered a rally in risk assets.

Corporate earnings also show improvement – EPS for 2025 is now expected to grow by 7% instead of 3%, supported by better-than-expected first-quarter results.

Goldman assigns a 35% probability of recession within one year

Consensus on GS EPS growth expectations

TECHNICAL PICTURE: Attractive Setup

By all obvious metrics, this rally remains under-owned. Gross exposure was sharply reduced in the initial phase of the correction, and shares in US stocks among leading CTA indices remain neutral or short. Forecasts indicate that CTA strategies will inject $14 billion in purchases next week and $25 billion in the coming month.

Net institutional positions, according to CFTC data, are at their lowest levels since summer 2024, around $228 billion, compared to a $331 billion peak at the end of 2024.

Unlike the delayed nature of the CFTC data, implied futures financing gives an accurate signal for intraday position extensions — and it’s glowing green: there are purchases in the system, and more are expected.

CTA Projected Flows

CFTC Positions – E-Mini S&P 500

Nasdaq 100

Russell 2000

Implied financing – short-term futures contract on S&P 500

CONCLUSION:

In light of the above, Goldman Sachs expects a further jump upwards as institutional players realign with the new shift in sentiment.