Goldman Sachs Expresses Concerns About the Speed ​​of Market Confidence Recovery

The rapid recovery in market confidence following the dramatic global sell-off in risky assets should be considered cause for concern, said the head of asset allocation research. Goldman Sachs.

In an interview with CNBC’s “Squawk Box Europe” on Wednesday, Goldman’s Christian Mueller-Glissmann said investors could view the early August selloff as akin to a “warning shot.”

Stocks began the month under intense pressure as concerns about a possible U.S. recession and the unwinding of a popular “carry trade” involving the Japanese yen sent stocks falling to record levels. The S&P 500 fell 3% on August 5, its biggest one-day loss since 2022.

But since then, stocks have soared on expectations of an imminent Fed rate cut and improving U.S. economic data. The S&P 500 has risen 8% since Aug. 5, while the Dow Jones Industrial Average has gained more than 6%.

“Going into this, there was a month or two where positioning and sentiment were at the top end of the range. People were bullish,” Mueller-Glissmann said.

“We were actually a bit worried about a correction, because we had a bullish positioning at the same time, but the macro momentum was a little bit weak. There had been a negative surprise in the US macro over the previous month and a half, and actually the macro surprises in Europe and China were starting to turn negative as well,” he added.

“What’s concerning now is how quickly the market has gotten back to where we were. We can discuss that, but it certainly shows that we’re sadly back to the same issues we were in a month ago.”

Market participants are currently waiting for a major U.S. inflation report to get a better idea of ​​the health of the world’s largest economy. U.S. personal consumption expenditures data, the Federal Reserve’s preferred inflation gauge, is due out on Friday.

Expectations were high that the central bank would cut rates at its September 18 meeting after Federal Reserve Chairman Jerome Powell said late last week that “it is time to adjust policy.” Powell did not give specific indications on the timing or scope of a cut.

Asked where risk appetite lies in the coming months, Mueller-Glissmann said, “What happened on and around August 5th was clearly a massive technical overreaction… so it was a buying opportunity.”

He said the challenge for market participants now is that stocks and risky assets have “completely reversed” their losses and are back to their previous levels.

“What I find quite interesting is that risk appetite has not returned to previous levels, and what has happened is that there has not really been a sell-off of safe assets – bonds, gold, the yen, the Swiss franc,” Mueller-Glissmann said.

“The good news is that the S&P is back to where it was, but complacency is not. We’re not in the same kind of extreme bullish sentiment and positioning.”

Mueller-Glissmann, who previously advocated a 60/40 portfolio, said the balanced portfolio had performed “remarkably” during a month of market turbulence. But he warned that the recent cushion provided by bond markets may not be all that reliable in the short term.

“If you think about it, the bond market has cushioned most of the decline. If you look at the 60/40 portfolio, it was temporary. I think the maximum decline was 2% for the balanced portfolios in the U.S. or Europe. In other words, the bond market has balanced out equities as we expected,” Mueller-Glissmann said.

“Given that there isn’t a lot of cushion in bonds right now, especially after this selloff, it might be wise to be a little bit cautious about your risk exposure strategically,” he added.

“There are a number of ways to deal with this. It could be tweaking it a little bit, creating an alternative variance product, it could be a liquid alternative product, it could be an options overlay.”

— CNBC’s Lisa Kaila Han and Brian Evans contributed to this report.