More interesting thoughts here from Goldman on risks to the equity markets. In this recent note they cite three big risks to the markets – 1) geopolitical risks; 2) China; and 3) rising interest rates:
Geopolitical risks remain high, but in the case of both Iraq and Ukraine our expectation is that the likelihood of a broader market impact is low. Still, both conflicts remain very volatile and have the potential to have broad impact if they escalate beyond our expectations and this risk provides additional support for our equity downgrade. The risks to our growth outlook on the other hand have diminished as we now see the risks to our Chinese growth forecast as being broadly balanced rather than skewed to the downside. We see a move in bond yields as the most likely cause of market volatility in coming months and think our new allocation lowers the risks to the portfolio from this.
This is a big call here. The rising interest rate call is something Goldman appears to have a good deal of conviction about. And it implies rising inflation, much stronger economic growth and a strong repositioning in monetary policy. It will be interesting to see how right this forecast is in the coming years….
Source: Goldman Sachs
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.