A senior Goldman Sachs Asset Management executive says three specific and potentially high-velocity risks are keeping her up at night, even as equity markets continue pushing to new record highs and investor sentiment remains broadly optimistic.
In a new episode of Goldman Sachs’ The Exchanges podcast, Alexandra Wilson-Elizondo, global co-head of Multi-Asset Solutions at Goldman Sachs Asset Management, says the risks she is watching are notable not for their probability but for the speed and severity of the damage they could cause if they materialize.
“From what keeps me up at night, the probability of these is not equal. But what they have in common is that they’re very high-velocity impacts.”
The first risk is the feedback loop between the labor market and the equity market, a dynamic Wilson-Elizondo says is more dangerous today than in previous cycles because of how many retail investors are now directly exposed to stocks.
“The feedback loop between the labor market and the equity market would be really harmful this time around, because there’s such a large percentage of retail owners in the equity market right now, meaning you lose your job, you’re not going to want to be as long equities. You can see velocity trade down with that.”
The second risk centers on leverage in parts of the financial system where borrowers cannot adapt quickly enough to a rapidly changing technological environment.
“As it relates to leverage in the system… for me it’s more about spaces where you have leverage, and you don’t have control, meaning you can’t augment a business model, compete against a rapidly changing technological world. That makes me nervous.”
Wilson-Elizondo says an AI winter is the final risk keeping her up at night, although she notes that it is a low-probability scenario rather than a base case.
“Last but certainly not least, it’s the amalgamation of all of these different factors happening at the same time as an AI winter. Now, I put a very low probability on an AI winter.”
As of Thursday’s close, the S&P 500 is trading at a new record high of 7,501.
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