Goldman Sachs is warning investors that this long bull market has led to excessive valuations.
Goldman’s warning is timely because today the so-called #FANG stocks have sustained their sharpest drop in 22 months.
Goldman believes that at some point today’s excessive valuations are going to translate into pain for investors.
“It has seldom been the case that equities, bonds and credit have been similarly expensive at the same time. It has happened before only in the Roaring ’20s and the Golden ’50s.” This according to GS strategists including Christian Mueller-Glissman. “All good things must come to an end” and “there will be a bear market, eventually.”
Their concerns have been amplified by central banks that have been cutting back on quantitative easing. Extreme valuations combined with credit tightening by the central bankers is a volatile combination.
Even so, GS recommends staying in equities. In the Goldman strategists’ main scenario of lower but positive returns, investors should “stay invested and could even be lured to lever up.” They suggested putting more in equities, with their greater risk-adjusted returns. Meanwhile, investors should scale back duration in fixed income.
It should be noted, however, that the warning issued today contrasts somewhat with Goldman’s more bullish message given just a short time ago.