According to Goldman Sachs, the markets are not even close to the bubble
While global stock indices are close to record highs, one of the largest investment companies Goldman Sachs does not think that markets should be in a bubble. According to the bank, current valuations are not a big systematic risk.
Systematic risks are very low
The bank's analysis shows that it lacks the basic characteristics that would indicate that stock markets are now in a bubble. A typical feature of systematic risk is an increased leverage effect in the private sector and a decline in savings. We don't see either right now. What is very positive, according to the bank, is the concentration of the current bullish trend in all different sectors of the market. At the same time, according to the bank, technology stocks are not a risk either, as they are still growing strongly, generating cash and being able to transform their industry into higher profits.
We are still at the beginning of the economic cycle
There are also signs of over-optimism in the market, with some stocks growing suspiciously high. However, the underlying market factors and the early stages of the economic cycle suggest that we are very far from a market bubble. However, specific stocks that show huge increases in a very short period of time will continue to be a very risky business for investors.
Better prospects for economic recovery are also kept at record highs by European indices, which have so far coped with extended lockdowns and delays in vaccine deliveries. Therefore, in Europe, we might witness a gradual fading of the risks of correction, which, paradoxically, may be affected by possibly worse and slower data than in the US, where the pace of vaccination is faster. Everything is far from perfect, but despite the high valuations, which mean lower yields, in the long run, we should not be in the middle of one big bubble.
Chart: S&P 500 daily chart (source: PT cTrader)