Banking giant Goldman Sachs says the latest market rally has gone further than the underlying fundamentals justify, and has a blunt recommendation for investors tempted to chase it higher.
In a new episode of Goldman Sachs’ This is the Markets podcast, Bobby Molavi, head of European Execution Services in Goldman Sachs Global Banking & Markets, says the market’s resilience has been impressive.
But he points to several reasons why the risk/reward no longer favors chasing the rally, starting with the oil market.
“I think it’s still hard to imagine or believe that the market has been so resilient, given the various things we could worry about. Oil’s back in 1992 dollars, but it’s not back to where we were pre-crisis. Obviously, rates now have normalized a little bit.”
Looking at interest rates, he says the path to cuts is likely more drawn out than investors had hoped.
“The hiking versus cutting dynamic still is probably going to result in cuts coming through slower or later than people hoped for.”
He adds that the market is leaning heavily on the AI narrative while believing that tensions in the Middle East are mostly resolved.
“The market still is pinning itself to the AI CapEx story. But I think we’ve moved a long way pricing in the conflict being resolved. I think there are still some marginal risks of a blip along the way.”
With positioning stretched and risks looming, Molavi lands on a clear conclusion.
“Fade the rally if I had to choose.”
The S&P 500 soared to a fresh all-time high of 7,147 during the Friday session before closing the day at 7,126.
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