Goldman: "All Assets Except Stocks Are Signaling Less Risk Appetite"

It has been another violent, tumultuous, whipsawed, and illiquid, 72-hour trading period, with stocks plunging at the end of last week to their second correction of the year from the January highs, only to rebound furiously - and surprisingly - with the Dow posting its third largest one-day point move in history (if far smaller in percentage terms obviously).

The reversal was even more surprising when one considers the growing bearish positioning across all asset classes... well, all but stocks.

As Goldman equity strategist Ian Wright reports overnight, after last week's pounding, Goldman's risk appetite indicator (RAI) which at the end of January hit its highest level on record, was nearing neutral levels (Exhibit 1)...

... with the signal from most asset classes that appetite has retreated. However, although equities were the worst performing asset class last week, Goldman's equity risk appetite signal had not actually fallen, as shown in the chart below:

This, Goldman explains, is because last week:

  • (1) EM again outperformed DM and
  • (2) small outperformed large caps (Exhibit 3), in part due to the  underperformance of tech, which was most likely from political, regulatory and potential tax concerns rather than from poor data about current profitability.

Furthermore, the small vs. large move was particularly sizeable relative to how range-bound it has been much of the past year. The equity signal has also been supported as cyclicals have not actually fallen much relative to defensives.

To be sure, yesterday's events demonstrated very vividly that in this case, Goldman was right, as it took very little to launch a 669 points surge in the Dow (which has in turn prompted numerous skeptics).

And, perhaps surprisingly, Goldman is among them. As Wright concludes, during the last two low vol regimes (August 2012 to September 2014 and the recent low vol regime starting in June 2016), the bank's RAI nearing zero has been a reversal signal.  However, now that the low vol regime has finally faltered, "it is less clear if this level will trigger a reversal again", although Goldman writes that the bank continues to not expect a bear market.... even though its bear market indicator is at 71%, a level last seen just before the bursting of the dot com and housing/credit bubbles.

As a result, Goldman reminds that last week it recommended buying correction hedges such as 97/93 S&P 500 put
spreads. It is sticking with this reco. Which, the contrarians will quickly note, means that Monday's surge is likely to continue, especially since Gartman's stop-out level is some 40 points higher at 2,710.


GooseShtepping Moron Tue, 03/27/2018 - 11:01 Permalink

I've completely stopped paying attention to market moves. There is no logic, no motivation, no rhyme or reason behind them. It's just the meaningless oscillations of sentiment now. No real man could possibly care about them.

LawsofPhysics Tue, 03/27/2018 - 11:15 Permalink


GS is the fucking Fed and there is no market!  It is a fucking casino run/owned by the Fed!

Place your bets, just don't call it investing.

"Full Faith and Credit"

same as it ever was!

MusicIsYou LawsofPhysics Tue, 03/27/2018 - 12:34 Permalink

I actually believe that most people are so stupid to the point that banks don't need to be super crooked. Not saying that they haven't done crooked things, but that in general people are so stupid to the point that banks don't always have to be crooked. I mean nobody literally twisted your arm to keep up with the Joneses by walking into a bank for that $50k car loan or $500k home loan. You did!

In reply to by LawsofPhysics

scipiotheelder Tue, 03/27/2018 - 11:24 Permalink

Goldman is an electronic/mechanical device that expertly and with surgical precision removes all monies in their clients accounts and relocates it into theirs'.

MusicIsYou Tue, 03/27/2018 - 11:38 Permalink

Goldman is saying that the market is saying that all assets except stocks are bearish. Goldman is not saying the markets are correct in what the markets are saying but that it's what the markets are saying. Personally I'm bearish on stocks (unless they're below $10 per share), because there's not the phrase 'the crowd is usually wrong' for no reason. Interest rates are going to have to rise, and yields on securities are going to have to rise to entice investors. Where the story seems to go, but where it has to go are two entirely different things. I totally don't care what the markets say.

east of eden Tue, 03/27/2018 - 12:01 Permalink

Goldman Sucks can 'exhibit' all they want to. Doesn't mean any rational person should ever believe them. They are on their death bed. One more good kick and they will be gone, forever.

You know what I find is the most embarrassing thing about all this bullshit? Not one person in the swamp has the courage or the guts to come out and admit that indeed, it is all total bullshit. 

MusicIsYou east of eden Tue, 03/27/2018 - 12:15 Permalink

Well only an idiot absolutely believes they're getting shown the full hand of what an institution is invested into. You fools are playing poker with institutions, and the economic analyses you read the institutions put out there for public consumption are merely the cards they've laid upon the table. Only a moron would lay their whole hand down on the table, and only a moron would want an institution to show their full hand. I wouldn't want Goldman to show me their whole hand of cards because then I'd think they are morons who can't possibly be trusted to make wise investments.

In reply to by east of eden

MusicIsYou Tue, 03/27/2018 - 12:53 Permalink

People always want banks to show their full hand, but that would mean the banks are moronic. That's like they aren't going to audit the Fed because that would be moronic. Like the same way people wish God would reveal himself but would be moronic.