Strategists at the investment bank cautioned clients on Tuesday that unchecked momentum and rising corporate profits are creating a dangerous environment where people might actually feel secure.
NEW YORK — Strategists at Goldman Sachs cautioned institutional clients on Tuesday that the ongoing stock market rally has triggered a rare and highly troubling technical indicator: sustained economic health.
In a note distributed to investors, the bank's equity research desk warned that ascending momentum, high risk appetite, and consistently strong corporate earnings have created a historically dangerous environment in which portfolios are simply growing in value without any complex institutional intervention.
According to the analysts, the steady climb of the S&P 500 over the past quarter is flashing a historically accurate signal that ordinary investors might be experiencing unchecked optimism, a condition the bank described as fundamentally destabilizing to the broader advisory ecosystem.
When we see risk appetite this ascendant and equities performing this consistently, our models tell us something is terribly wrong. Lines are going up, people are holding their positions, and nobody is panicking enough to pay us to restructure their assets.
Historical data cited in the report suggests that prolonged periods of unmitigated market growth often lead to the worst possible outcome for the financial sector: a broad realization that passive index funds are perfectly adequate. Vane noted that the last time momentum reached these levels without a corresponding spike in fear-based trading volume, several major hedge funds were forced to actively justify their standard two-percent management fees.
To defend against the looming threat of widespread prosperity, Goldman is advising its clients to rotate out of straightforward, profitable equities and into highly leveraged, proprietary derivative structures designed to protect their wealth from the devastating effects of things generally being fine.