Goldman Sachs is getting nervous about stocks.
In a note to clients, equity strategist Chrisitan Mueller-Glissmann outlined the firm’s fears that include significant risk to the downside for the market.
“There are generally more negative than positive 3-standard deviation moves for equities, indicating a negative ‘skew’ for equity returns,” said Mueller-Glissmann.
“And recently the balance has shifted further towards negative moves.”
Mueller-Glissmann and his team downgraded stocks all over the world to “Neutral” before releasing their note. They say in part that Goldman thinks investors should “expect particularly poor returns in dollar terms.”
Mueller-Glissmann also outlined a variety of reason why the market has gotten riskier. Most of his concern comes down to a lack of growth for companies and countries.
“We think elevated equity valuations and the lack of growth acceleration since mid-2014 have made equity markets more fragile and there have been several drawdowns because of ‘growth scares’ or external shocks during that period,” he wrote in his note to Goldman clients.
Mueller-Glissmann says the fragility they are seeing hasn’t been consistent yet, but if you look under the hood there are troubling signs that show instability.
“And while volatility has been relatively low on average, vol of vol has picked up with more frequent, sharp equity drawdowns,” said Mueller-Glissmann.
“This might reflect changes in regulation and market microstructure, which has reduced liquidity across assets.”
The structure of the market and troubling business trends are highlighted throughout the note.