A combination of high valuations and a risky macroeconomic environment is making Goldman Sachs worried about a correction in the stock market. “Tactically we are worried about equity correction risk, which has picked up due to higher equity valuations, less friendly macro momentum and higher policy uncertainty,” Christian Mueller-Glissmann, managing director of portfolio strategy at Goldman, said in a note to clients. A correction is usually defined on Wall Street as a 10% pullback in the S & P 500 from its recent high. The equity benchmark just hit a new record on Jan. 24, and is already up about 3.5% in the new year. But volatility has made a comeback as investors grapple with wild price swings surrounding President Donald Trump’s tariff moves as well as the advent of a new artificial intelligence competitor in China. .SPX 1Y mountain S & P 500 over the past year Goldman believes the tit-for-tat tariffs between the U.S. and its key trading partners is likely to result in more market uncertainty. China has retaliated with additional tariffs of up to 15% on select U.S. imports starting Monday, while Trump earlier this week paused tariffs on Canada and Mexico for 30 days. “The recent announcements of tariffs on Mexico/Canada and China (with some retaliation) have driven more volatility and uncertainty on the macro outlook,” Mueller-Glissmann said. “We have not made major changes to macro forecasts, in part as the final outcome remains uncertain, but incremental trade tariffs create more headwinds for the global growth/inflation/policy mix.” The Wall Street investment bank said that looking out over the next three months, it’s focusing more on hedges against any market downturns, using securities such as option overlays, the dollar and gold in the event that bonds struggle to buffer equities in the near term.
Goldman is worried about a stock correction due to higher valuations