Goldman Sachs Warns ‘Goldilocks’ Market May Be Hit By An Underlying Storm: Report

Goldman Sachs on Friday reportedly warned that the “goldilocks” U.S. equities market could be hit by an underlying storm, sending stocks tumbling 

According to a Yahoo Finance report, Goldman Sachs analyst Christian Mueller-Glissmann warned in a recent note that the current phase of calm in the U.S. markets could be threatened by two factors: a slowdown in economic growth or the Federal Reserve tightening its monetary policy.

Goldman said “goldilocks” phases exist when there is low market and economic volatility, resulting in stable returns. The firm said the chances of a major market rally are low, whereas the risk of a drawdown or a sharp market correction is elevated, according to the report. High stock valuations and a weakening business cycle often trigger these corrections, Goldman said, according to the report.

IG Bank analysts echoed similar views in a recent note, stating that sentiment indicators are flashing warning signals. “​The recent moderation in sentiment indicators may indicate that the market is beginning to recognise some of these underlying risks, though whether this represents a healthy correction or the beginning of a more significant adjustment remains unclear,” they said.

The Dow Jones index has gained nearly 6% year-to-date, while the S&P 500 index has surged around 10%. The tech-heavy Nasdaq 100 index has rallied nearly 13% in this period.

Meanwhile, U.S. equities declined in Friday’s midday session. At the time of writing, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, was down 0.31%, while the Invesco QQQ Trust (QQQ) fell 0.66%. Retail sentiment around the S&P 500 ETF on Stocktwits was in the ‘neutral’ territory.

Also See: Fed Chair Probable Marc Sumerlin Says Rate Cuts Would Need To Stop If 10-Year Treasury Yields Rise

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