Investor sentiment is running hot, but two emerging risks could put the brakes on the latest leg of the rally.
Alexandria Wilson-Elizondo, co-CIO of multi-asset solutions at Goldman Sachs Asset Management, told CNBC this week that the market appears poised for a tactical pullback—one the firm sees as a potential buying opportunity.
“We expect a little bit of a correction,” Wilson-Elizondo said. “And we would view that as a moment to continue adding risk selectively in portfolios.”
She flagged two key indicators suggesting the current market momentum may be on shaky ground:
1. Excessive Risk Appetite
Since the easing of trade tensions and improving macro data, investor optimism has surged. Wilson-Elizondo noted that sentiment has quickly turned euphoric, raising questions for tactical allocators.
A recent Bank of America fund manager survey showed sentiment climbing to 4.3 in July from 3.3 in June—its highest level since February, when optimism was fueled by the early policies of Trump’s second term. The same survey showed 59% of managers now believe a global recession is unlikely, marking a five-month high in growth expectations.
“Looking at sentiment and risk appetite, we’ve seen a sharp V-shaped rebound,” Wilson-Elizondo said. “In just three months, investors have rotated aggressively back into risk.”
For RIAs and portfolio managers, this shift may warrant a reassessment of risk exposure, particularly as stretched positioning increases vulnerability to macro shocks.
2. Retail’s Surge Into Equities
Retail participation in the equity market is surging, contributing to what Wilson-Elizondo called a potential “fragility” under the surface of the rally.
Retail investors bought an estimated $50 billion in stocks over the past month, in line with figures released by Barclays. JPMorgan, in a separate report, estimated retail flows reached $270 billion in the first half of the year and are on track to hit $360 billion in the second half—levels that far exceed historical averages.
“This retail buying has come in much stronger than in previous cycles,” Wilson-Elizondo said. “And to us, that’s very exposed to any deterioration in the labor market.”
While job growth remains positive, there are signs of slowing. Goldman strategists this week warned that private-sector job gains are decelerating. They highlighted the risk of the economy slipping into “stall speed,” where subpar employment growth feeds a self-reinforcing cycle of rising joblessness.
Wilson-Elizondo emphasized that labor market strength is closely tied to investor willingness to stay allocated to risk assets, particularly among less experienced investors.
“There’s a very strong correlation between employment stability and risk-on positioning,” she noted. “If hiring weakens materially, that could quickly dent retail participation.”
A Longer-Term Bull Case Remains
Despite the short-term risks, Wilson-Elizondo remains constructive on the market’s trajectory into 2025 and beyond. Several tailwinds could support higher equity valuations over time:
-
Monetary Policy: With inflation moderating, the Federal Reserve is expected to cut interest rates over the next 18 months. The CME FedWatch tool shows investors assigning a 93% probability that the Fed lowers rates one to three times by the end of 2025—moves that would ease financial conditions and reprice risk assets higher.
-
Pro-Growth Fiscal Policy: Trump’s proposed tax and spending plan is expected to provide targeted stimulus. The bill includes corporate tax incentives and measures designed to accelerate capital investment, which could bolster earnings growth and equity demand.
Wilson-Elizondo said this macro backdrop gives Goldman conviction in a constructive, albeit selective, equity outlook.
Correction Calls Mounting
She’s not alone in calling for a tactical pullback. Several major asset managers and research firms, including Evercore ISI, Stifel, Pimco, and HSBC, have recently warned of correction risks as equities push to new highs.
For advisors, the message is clear: While long-term fundamentals remain supportive, near-term positioning should be monitored closely. Rebalancing into weakness and maintaining discipline around client goals may prove critical if volatility re-emerges.
“We see any pullback as an opportunity to build exposure—especially in areas where fundamentals continue to improve and valuations are still reasonable,” Wilson-Elizondo said.
