Goldman Sachs issued a warning about the sustainability of the recent stock market rally. Strategist Peter Oppenheimer warned in a client note that stocks appear to be “priced at the price of perfection,” making them increasingly susceptible to corrections.
Rising bond yields, high valuations and economic uncertainties could weigh on market resilience, he noted.
While Oppenheimer expects equity markets to make general gains in 2025, driven primarily by earnings growth, he highlighted three key risks:
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Overvaluation: The rapid rise in stock prices suggests that much of the expected economic growth for 2025 has already been priced in. Recent selloffs in high-growth stocks such as Nvidia, Palantir and AMD reflect growing investor concern about elevated valuations in a potential higher interest rate environment. This overextension may limit returns going forward, with Goldman forecasting a total S&P 500 return of just 3% over the next decade, ranking in the seventh percentile of historical returns since 1930.
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Market concentration risk: The five largest U.S. companies—Apple, Nvidia, Microsoft, Alphabet and Amazon—now account for about a quarter of the S&P 500. This heavy concentration increases the risk of a broader market correction if any of these firms underperform or face unfavorable trading conditions. Such dependence on a small number of stocks represents a significant challenge for portfolio diversification.
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Competition from other assets: Goldman highlighted the increasing competition that alternative assets, including Bitcoin and other investments, may face as investors seek better returns in a changing economic environment.
Oppenheimer also noted that it has historically been a challenge for companies to maintain high levels of sales growth and profit margins over the long term, increasing the likelihood of investor disappointment about performance.
Adding to these concerns, Oppenheimer suggested that the strength of the recent rally could exacerbate market volatility in the coming months. Factors such as Trump policy risks, trade tariffs and the 10-year Treasury yield potentially climbing to 5% create a complex backdrop for investors. He stopped short of predicting an imminent 10% correction, but advised caution, recommending that investors consider reducing risk exposure in their portfolios.