FX168 Financial News (North America) reported that Goldman Sachs issued its latest warning on Thursday (January 9): As investors digest the rising Bond yields, high valuations, and further interest rate uncertainty, the currently perfect money-making market environment may be difficult to sustain.
"The recent strong rebound in the stock market has pushed the current valuations in the stock market towards perfection," said Goldman Sachs strategist Peter Oppenheimer in a report to clients. "Although we expect the stock market to continue to rise overall throughout the year, driven mainly by corporate earnings, the stock market is becoming increasingly vulnerable to pullbacks, especially if Bond yields rise further or economic data and earnings performance disappoint."
While Oppenheimer did not explicitly predict a short-term pullback in the stock market (typically defined as a 10% drop from the peak), he listed three key reasons to advise investors to reduce risk exposure in their portfolios.
1. The rapid rise in the stock market may have already priced in optimistic expectations for 2025.
Oppenheimer pointed out that the recent rapid increase in stock prices has likely reflected positive market expectations for economic growth in 2025. This concern was evident in Nvidia's (NVIDIA, NVDA) performance this week. Over the past year, Nvidia's stock price soared 185%, becoming a darling of the market.
However, investors were disappointed by Nvidia CEO Jensen Huang's speech at the CES conference on Monday evening. As a result, Nvidia's stock price recorded its largest single-day drop since September 3 on Tuesday.
Similar high-valuation momentum stocks have also experienced significant pullbacks. For example, Palantir (PLTR) and AMD's (AMD) stock prices fell more than 10% each in the past month, reflecting the market's pricing for a higher interest rate environment to some extent.
Wedbush Analyst Dan Ives stated in Yahoo Finance's Opening Bid podcast: "Companies like Palantir and Tesla (TSLA) that we have seen selling recently, I believe we will have more 'white-knuckle moments' (i.e., moments of high investor anxiety) in the next six months."
Eves pointed out that risks such as Trump's news risks, tariff issues, the 10-year U.S. Treasury yield reaching 5%, and their impact on Federal Reserve policy are all potential risk factors for market volatility in the future.
2. High valuation limits the future return potential of Stocks.
Oppenheimer noted that the current high valuation of the stock market may limit future investment returns. Research from Goldman Sachs shows that companies find it difficult to maintain high sales and high profit margins in the long term, leading investors to sell Stocks if corporate performance falls short of expectations.
At the same time, the stock market may face strong competition from Other assets over the next decade. Oppenheimer specifically mentioned the rising appeal of emerging asset classes like Bitcoin.
According to Goldman Sachs’ estimates, the total return of the S&P 500 Index over the next decade is only 3%. This return is ranked in the seventh percentile of 10-year return data since 1930, representing a historically low level.
3. High market concentration increases portfolio risk.
Oppenheimer also pointed out that the current high concentration in the market further increases portfolio risk.
Currently, the five highest Market Cap companies in the USA—Apple (AAPL), NVIDIA, Microsoft (MSFT), Alphabet (GOOG, GOOGL), and Amazon (AMZN)—collectively account for about one-quarter of the S&P 500 Index. If any of these companies underperform or market risk aversion increases, it could trigger a wider market correction.
Keith Buchanan, a senior portfolio manager at Globalt Investments, believes that the continued dominance of growth Stocks may lead to a top-heavy market.
"If the economy performs poorly and Consumer spending fails to sustain... in our view, the performance of growth Stocks is highly susceptible to economic pressure, and this pressure is likely to affect overvalued companies first," Buchanan warned.
