A perfect, money-making market environment may not continue for much longer as investors digest rising bond yields, inflated valuations and uncertainty over further interest rate cuts.
That’s a new warning Thursday from Goldman Sachs.
“The strong rally in stock prices in recent months leaves stocks priced to perfection,” Goldman Sachs strategist Peter Oppenheimer said in a note to clients. “While we expect stock markets to continue advancing throughout the year as a whole, driven largely by earnings, they are increasingly vulnerable to a correction driven either by further increases in bond yields and/or disappointments about economic data or earnings growth.”
While Oppenheimer stops short of predicting a near-term correction (loosely defined as a 10% pullback from a high) in stocks, he offers three plausible reasons why investors might reduce risk in their portfolio right now.
Read more: Former TD Ameritrade CEO Makes His 2025 Market Prediction
For starters, Oppenheimer notes, the speed of recent stock price rallies likely reflects much of the good news Wall Street expects about growth in 2025.
Concern that strong future growth is already reflected in valuations could be seen this week with market favorite Nvidia (NVDA), a stock that has soared 185% in the past year.
Investors were left craving more after CEO Jensen Huang’s Monday night CES keynote. In response, the stock on Tuesday posted its worst day since Sept. 3.
Other highly valued momentum names like Palantir (PLTR) and AMD (AMD) have sold off more than 10% in the past month as traders price in a higher interest rate environment, among other factors.
“You could look at names like Palantir, Tesla (TSLA), some of the selloffs we’re seeing, I think overall we’re going to see some white knuckles over the next six months,” Wedbush analyst Dan Ives said. he said on Yahoo Finance’s Opening Bid podcast (video above; listen below). “The risk of Trump headlines, tariffs, the 10-year Treasury bond as it moves to 5% and what it means for the Fed [are all risks] – and I think we’re going to see some of that [volatility].
Oppenheimer also notes that high stock valuations are likely to limit future returns.
Goldman’s research found that it is “extremely difficult” for companies to maintain high levels of sales and profit margins over sustained periods of time. Therefore, this sets the stage for investors to be disappointed by the performance and choose to sell shares. The stock is also likely to face “tough competition” from other assets (see bitcoin) over the next decade.