The global investment banking giant Goldman Sachs Group Inc. has raised concerns about a potential market shock that could disrupt the current ‘Goldilocks’ economy.
Goldilocks Economy Holds, But Growth And Rate Risks Loom
The term ‘Goldilocks’ economy refers to a balanced economic scenario, not too hot to cause inflation or too cold to slow growth. The S&P 500 index is currently near its all-time high, and investors are in high spirits.
However, Goldman Sachs’ chief global equity strategist, Mueller-Glissmann, and his team have identified three potential ‘bears’ that could disrupt this equilibrium. A growth shock, which could result from increased unemployment or disappointments in AI. Secondly, a rate shock, in case the Federal Reserve doesn’t implement further rate cuts. Lastly, a new dollar bear, leading to a 10% devaluation of the dollar, which could deter foreign investors from the U.S. market, Fortune reported.
"There is a risk that Goldilocks meets one of the three bears," Mueller-Glissmann says.
Mueller-Glissmann noted that, despite these potential shocks, none have materialized yet, though the risk of growth and interest rate shocks persists as year-end approaches. Cleveland Fed President Beth Hammack shared a similar view, indicating she does not anticipate any major market downturn in the near term.
AI Boom Surges As S&P Faces Potential Market Bubble
The warning from Goldman Sachs comes amid ongoing discussions about a potential AI stock market bubble. The AI sector has been defying gravity, with companies like NVIDIA Corporation (NASDAQ:NVDA) at the center of this boom. Despite concerns about overvaluation, the AI market continues to grow, raising questions about the sustainability of this trend.
Earlier in September, Bank of America strategist Michael Hartnett also sounded the alarm on a potential AI stock market bubble, citing historic valuation metrics. The S&P 500’s price-to-book ratio hit a record high, surpassing levels seen during the dot-com bubble in 2000.
Despite these warnings, the S&P 500 entered the historically strong fourth quarter with a warning sign for investors. While the fourth quarter typically delivers the best average returns, a strong year-to-date performance through September often leads to a flat or negative October, creating uncertainty for Wall Street.
Price Action: The SPDR S&P 500 ETF Trust (NYSE: SPY) and Invesco QQQ Trust ETF (NASDAQ: QQQ), which track the S&P 500 index and Nasdaq 100 index, surged 13.52% and 17.35%, respectively, on a year-to-date basis, according to Benzinga Pro data.
Meanwhile, SPDR Dow Jones Industrial Average ETF Trust (NYSE: DIA), tracking the Dow Jones, climbed 9.26% during the same period.
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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