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Goldman Sachs Has Bad News for Investors Rushing to Buy the Dip

Stock MarketsDec 07, 2021 09:36AM ET
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© Reuters Goldman Sachs Has Bad News for Investors Rushing to Buy the Dip

(Bloomberg) -- Goldman Sachs Group Inc (NYSE:GS) is issuing words of caution for dip buyers plunging back into stocks: The December volatility breakout has room to run -- and risk gauges aren’t yet flashing buy signals.

The hawkish tilt from the Federal Reserve just as the omicron variant spreads will continue to create all manner of trading challenges in the near-term, according to Christian Mueller-Glissmann, managing director of portfolio strategy and asset allocation at the firm.

After a selling wave that brought down everything from big tech to Bitcoin, the Goldman Sachs Risk Appetite Indicator is below zero, but it could still fall farther, according to the firm. 

“Without any view on better macro you would want the RAI closer to -2 before adding risk,” said Mueller-Glissmann in an interview. “A drop below or near -2 could create a very good opportunity to re-risk and position more procyclical, especially if growth stabilizes post-omicron.” 

His caution contrasts with a big turnaround in risk assets this week on signs the new strain won’t be as virulent and deadly as feared and won’t drive the economic recovery off-course.

Meanwhile, a Deutsche Bank AG gauge signals risk assets may be closing in on a bottom.

Volatility markets show fragile sentiment. Investors are paying up to hedge against wilder swings than what they’ve experienced already. Last week’s run of turbulence was the worst in a year, with the S&P 500 notching up or down moves of at least 1% on five straight days through Friday. 

At 27, the VIX still sits seven points above its average for the year and the front-month futures contract is higher than ones in subsequent months, a signal that investors anticipate near-term turbulence to persist.

Read more: Traders Find Troubling Clues in VIX to More Stock Turmoil Ahead 

All the same, a Deutsche Bank cross-asset momentum measure is firmly negative and already near historic lows.

“The breadth is now approaching a place where it does usually turn around so we’ll expect some asset classes to find a bottom here,” Parag Thatte, strategist at Deutsche Bank, said in an interview. “The turnaround should be in the short term, it should be in the next three-four weeks.”

©2021 Bloomberg L.P.

 

Goldman Sachs Has Bad News for Investors Rushing to Buy the Dip
 

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Comments (8)
Al Ose
Al Ose Dec 09, 2021 5:18PM ET
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Volitilty hit a yearly high last week. Under GS scenario I guess we buy only on the once a decade crashes.
Chris Sundo
Chris Sundo Dec 08, 2021 7:07PM ET
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Looks like institutions like GS are late to turn around and need to give excuses why they haven't come around yet. The dip buyers will average down all the way to where the bottom is. It's only logical.
Peter Ojo
Peter Ojo Dec 08, 2021 7:07PM ET
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Please i want to learn how to trade
Alex Chan
Alex Chan Dec 07, 2021 11:12AM ET
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translation >> we at Goldman Sachs must poo poo buying the dip since we missed it while celebrating Hanukkah
Edward Chong
Edward Chong Dec 07, 2021 10:00AM ET
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gman miss buying at the low so giving the sacred tactics again.
Pratt Man
Pratt Man Dec 07, 2021 9:53AM ET
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my risk numbers say the opposite. And i make a living trading risk. Way too much of pessimism. There is actually a lot of room to run to the upside, but January might be a different opinion.
Darrell Massie
Darrell Massie Dec 07, 2021 9:53AM ET
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Lol, If GS is warning people in the public communications. Do the opposite :)
Rosh Jardine
RoshJardine Dec 07, 2021 9:47AM ET
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In simple words..short squeeze..goldman su ks
Imre Zsombor Varga
Imre Zsombor Varga Dec 07, 2021 9:47AM ET
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Everything must be given. Nothing justifies the rise of the very reckless who is buying now. The output of the economy is nothing, inflation, epidemic ...sell
Pratt Man
Pratt Man Dec 07, 2021 9:47AM ET
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largest is economy ever... right now. workers wages rising at the fastest pace in 21 years and yes inflation, but it's mostly energy based. Profits are through the roof Keep selling.
Ciprian Gal
Ciprian Gal Dec 07, 2021 9:47AM ET
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Pratt Man do research, and you see that rent inflation is already on the rise (10% up since last month), wage inflation up, etc. Those are numbers go into the core pce
 
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