Goldman Sachs issues a warning: Market recovery from a sharp decline is happening too quickly, which is not a good thing!

Goldman Sachs Asset Allocation Research Director stated that after the significant sell-off of global risk assets on Black Monday, August 5th, market confidence quickly recovered, but this is not a good thing and should instead cause concern.

Goldman's Christian Mueller-Glissmann mentioned on Wednesday that investors can view the early August stock market plunge as a "warning." Due to concerns about a possible recession in the United States and a large unwinding of "carry trades" related to the Japanese yen, global stock markets faced severe selling at the beginning of this month, with the S&P 500 index falling by 3% on that day, marking the largest single-day decline since 2022.

However, expectations of the Fed's imminent rate cut and improvements in U.S. economic data have driven the stock market's recovery. Since August 5th, the S&P 500 index has risen by 8%, and the Dow Jones Industrial Average has increased by over 6%.

The research director believes that the market's performance does not match the weak macro backdrop, and there should have been a correction, but the quick recovery after the correction has led the market back to its previous dilemma.

"Before entering this phase, for about a month or two, the market's positioning and sentiment were at the upper limit of the range. People were very optimistic," Mueller-Glissmann said. "We expected some adjustments because although you held a bullish position, the macro backdrop was a bit weak. In the 1.5 months before this, unexpected negative impacts on the U.S. macroeconomy began to emerge, as did negative impacts on the macroeconomies of regions like Europe," he added.

"What is worrying now is how quickly the market has returned to previous levels... but this undoubtedly indicates that we are almost back to the same issue as a month ago."

Market participants are currently awaiting the release of the U.S. PCE inflation report on Friday to better understand the health of the world's largest economy. Fed Chair Powell stated last week, "It's time to adjust policy," enhancing expectations for a rate cut at the Fed's September meeting. However, Powell refused to provide specific details on the timing or extent of future rate cuts.

Another issue the market faces is that while risk assets have returned to previous levels, market risk appetite has not yet recovered.

When asked about how risk appetite will evolve in the coming months, Mueller-Glissmann responded, "The events of August 5th and the surrounding days were clearly a technical overreaction... so it was actually a buying opportunity." However, the challenge facing market participants now is that stocks and risk assets have "completely reversed" losses and returned to previous levels.

Mueller-Glissmann stated, "I find it very interesting that risk appetite has not returned to previous levels, and the actual situation is that safe-haven assets—bonds, gold, the yen, and the Swiss franc—have not actually been sold off."

"I want to say, the good news is that although the S&P has returned to its previous level, the market's extreme optimism has not. We are not in the same extreme bullish sentiment and position as before."

In addition, Muller-Griezmann previously advocated for a 60/40 investment portfolio, pointing out that a balanced portfolio performed "amazingly" in a turbulent month in the market. However, he now warns that the cushion provided by the bond market may not be reliable in the short term.

He noted that the bond market has hedged the stock market's sharp decline as we hoped, but "considering that bonds do not provide as much cushion at the moment, tactically, you may need to be more cautious with the risk portion, especially after this sharp drop event." He believes there are different ways to address this issue, either slightly reducing holdings or creating other diversified investment tools, such as liquidity substitutes or options hedging, and so on