"How Much Further?": Goldman Warns This Is The 5th Longest Streak Ever Without A 5% Correction

Goldman is becoming increasingly worried that a correction - and a sizable one at that - appears imminent.

Two weeks after the investment bank announced that according to its Bear Market Risk Indicator the odds of a crash have risen to 67%...

... on Monday morning, Goldman cross-asset strategist Ian Wright cautions in his latest Kickstart letter that the S&P is now rapidly closing in on the longest period in history without a 5% correction, and that as of today, only 4 times in history has more time passed without a 5% correction. The warning follows similar caution from Goldman's chief equity strategist David Kostin who as discussed yesterday, has a very bleak outlook for US stocks, and expects the S&P to slid to 2,400 by the end of the year, remain unchanged through the end of 2018 and rise just 100 points by the end of 2019.

As Wright points out today in a note titled "How much further?" in which he reminds the firm's clients that just last week it reiterated its 12-month OW equities position in our asset allocation, "our sense is that most clients are in agreement, being "reluctantly long" equity given absolute returns are likely to be lower in the future relative to the recent past, but on a relative basis the asset class still appears the most attractive."

And yet, just like Kostin yesterday, Wright says that given this positioning and the good level of current growth leading to concerns about it potentially slowing, "increasingly the most common question we receive is "when will the market crack?" He goes on to show that based purely on the length and resilience of the current bull market this question makes sense, particularly now - the S&P 500 is currently in the fifth longest streak in history without a 5% correction, and should the pattern continue it will become the longest streak ever by mid-December.

That said, Goldman - tactically long equities - is not suggesting a crash is imminent, and caveats that "low volatility rallies can last a long time, and that valuations can be a poor signal for returns and drawdowns in the near-term."

In our view, these dynamics are again at play currently, with any vol being sold on spikes and dips being bought quickly, as the current low vol regime appears intact.

So in light of all the evidence of an imminent correction, what is Goldman's advice to clients? Why, do nothing of course.

Our US equity strategists recently argued against an imminent correction, and our global equity strategist sees low risk of a bear market starting. And while most of the recent central bank meetings (ECB, BoE, Fed) all pointed to tightening policy, we think risky assets should be able to digest higher yields as long as the growth backdrop remains supportive, which we expect.

This, despite two weeks ago laying out no less than 7 reasons why Goldman's clients just can't wait to get out.

  • History. Many investors argue the bull market is “long in the tooth” and will soon come to an end.
  • Volatility (or lack thereof). Realized 3-month vol is nearly the lowest in 50 years. Implied vol as measured by the VIX stands at 12, a 6th percentile event since 1990.
  • Valuation. Equity valuations are stretched on almost every metric. The typical stock trades at the 98th percentile and the overall index at the 87th percentile relative to the past 40 years
  • Economics. The current US economic expansion just celebrated its 8th birthday making it one of the longest stretches without a recession
  • Fed policy. The FOMC has lifted the funds rate by 100 bp since it started tightening in December 2015. During prior hiking cycles, equity P/E multiples typically fell but multiples have actually expanded during the past two years.
  • Interest rates. Two months ago, Treasury yields equaled 2.4%, ten-year implied inflation was 1.7%, and the S&P 500 stood at 2410.
  • Politics. President Trump’s fluid positions on domestic policy disputes in Washington, D.C. and geopolitical gamesmanship with Pyongyang and Beijing make political forecasting a precarious activity.

Meanwhile, the market is now well over 300 days without a 5% correction and counting...

Comments

GodHelpAmerica Mon, 09/25/2017 - 08:56 Permalink

When do the central banks stop buying?

Which leads us to this question: when will sovereign bonds yield real positive returns?

Never.

That's your answer GS, and you already knew that...

Crack up boom

Calculus99 Mon, 09/25/2017 - 09:03 Permalink

Americans are too obsessed with meaningless stats, like the stockmarket has never gone down on a Monday when a) the NY jets won by over 20 points on the Sunday, b) it was a full Moon, and c) the temp is NY was greater than 75.  

silverer Mon, 09/25/2017 - 09:04 Permalink

Sorry. Pension systems can't tolerate a "corrected" number. Correcting will mean even shorter funds. Sorry, have to keep printing and cross your fingers (tighter and tighter).

Babs.St.Louis Mon, 09/25/2017 - 09:23 Permalink

Goldman is so currupt.  They proved it when they came out with a target for gold of 1370 when gold was almost at 1370. Shep Wave gave the target of 1370 when gold was at like 1100.  Goldman and Shepwave are all in on this together.  But we get signals earlier from SW since we are the little guy.  That has been my theory anyway and seems to be working sof ar. 

J J Pettigrew Mon, 09/25/2017 - 09:54 Permalink

HOWEVER, it is the FIRST longest streak with an UNBRIDLED FEDERAL RESERVE who has kept interest rates below the inflation rate for NINE YEARS!!!!!and wishes to control every tick of the market with feigns and evasive rhetoric and promises of actions that are always excused away.And a Federal Reserve that is probably a little long itself.....

moneybots Mon, 09/25/2017 - 10:01 Permalink

"How Much Further?": Goldman Warns This Is The 5th Longest Streak Ever Without A 5% Correction An empty warning. Everything is upside down, now. Four more streaks to pass. The stock market has no relation to the economy. In October 2001, the recession ended. The stock market didn't bottom out until a year later. Myth had it that the market is suppposed to lead the economy by 6 to 9 months. It was 12 months behind.

JailBanksters Mon, 09/25/2017 - 10:07 Permalink

So there has been 4 "longer" winning streaks in the past, this means what exactly ?Thing is, who controls the destiny of these streaks, is it the Moms and Dads betting on how much money a company is going to make in the next 24 hours. Perhaps it's all those Sales People in Stores no longer selling anything that's pushing the prices up. Perhaps it's all the people that used to make stuff that is pushing the prices up.You know who I think is pushing the prices up, Goldman.  

moneybots Mon, 09/25/2017 - 10:11 Permalink

 "During prior hiking cycles, equity P/E multiples typically fell but multiples have actually expanded during the past two years." The meter is broken. When the FED stopped QE, Japan and EU picked up the baton. Wasn't it recently noted that the BOJ owns 75% of Japanese ETF's?

Blue Dog Mon, 09/25/2017 - 10:33 Permalink

Goldman Sachs is one part of the corrupt system along with the Federal Reserve. There's a revolving door going from them to the Democratic Party. John Corzine, former Democrat governer of New Jersey and Goldman Sachs head, stole $1.6 billion in segregated customer accounts at MF Global. It was ruled an accounting error. Gerald Celente said now he knows what the MF stood for!

Fantasy Free E… Mon, 09/25/2017 - 10:33 Permalink

p { margin-bottom: 0.1in; line-height: 120%; }a:link { } When Goldman speaks it is to manipulate markets. The Federal Reserve is under a political directive to protect and elevate stock prices. Goldman will always be glad to help. This statement and others like it are to draw in shorts to be squeezed. http://quillian.net/blog/the-fed-unwinding/ James Quillian Fantasy Free Economics  

GreatUncle Fantasy Free E… Mon, 09/25/2017 - 12:37 Permalink

"The Federal Reserve is under a political directive to protect and elevate stock prices."You got to love it ... as ordinary people can't afford those prices and they know it so they can't lock into those economic gains being made and why in the end they will not care if stocks burn as they don't own any.That's the fail of supporting stocks and not the economy as a whole whilst letting the population be economically crushed.THEY WILL KNOW THEY HAVE BEEN ROBBED and do ask the FED how they intend to make it up to them? LOL they ain't so the anger will be here forever and growing as more and more are affected.Bubble house prices were okay couple of decades ago when people could get on the property ladder not anymore as too many can't afford those prices!

In reply to by Fantasy Free E…

RDouglas Mon, 09/25/2017 - 11:36 Permalink

What Goldman really said..... "We, the globalist bankers, in coordination with the deep state and msm, will be pulling the rug out from under the bullshit global economy soon. Elites need not worry, you will be escorted out the back Door of the burning ballroom when the party is over. Our scapegoat, Donnie the Dumbfuck is in place and already hated by 60% of Americans, so, remember to point the finger at him as the global tower of cards falls into its foot print. As usual there will be a bargain shopping party open only to 1%'ers in the weeks following the collapse, meantime looong pitchforks and torches."