Goldman Sachs has cautioned that after a summer of ‘Goldilocks,’ or unusually favorable market conditions, the likelihood of a stock market pullback has increased.
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“There is latent risk of unwinds in the event of negative growth and rate shocks,” said Goldman Sachs analyst Christian Mueller-Glissmann in a note.
Goldman added that elevated stock valuations and a deteriorating business cycle are key ingredients for a drawdown.
Goldman Points Out Concentration Risks
The Magnificent 7 stocks currently carry a 32% weight in the S&P 500 (SPX) and have driven a large portion of the index’s gains. That could create problems if these tech giants suddenly start to fall.
“The U.S. equity rally has again been concentrated in large cap U.S. Tech stocks, and this has come alongside signs of more speculative behavior among retail traders,” Goldman said. The investment firm also pointed out risks from President Trump’s tariffs and ongoing geopolitical pressures.
The S&P 500 has returned 9.98% year-to-date.
