The market horizon may be relatively sunny, but Goldman Sachs sees five key reasons to remain a worrywart.
“The basic market outlook that we forecast is one in which equities and bond yields can continue to rise together and in which developed market assets continue to offer better risk-reward than their emerging market counterparts,” Goldman said in a note.
But it added “although the mood in markets has turned more optimistic, we still encounter nervousness about the capacity for the outlook to remain positive.”
The bank sees five key risks:
1. The most likely risk is that long-dated yields could rise more sharply than expected in developed countries.
2. As economic growth improves, markets may begin to doubt developed market central banks’ commitment to easy money.
3. Low risk premia are also creating valuation challenges.
4. Earnings margins could compress more rapidly as wages recover.
5. Goldman worries its cautious call on emerging markets might be wrong.
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