The former chief executive who guided Goldman Sachs through the 2008 financial crisis is warning that the U.S. economy may be approaching another pivotal moment.
Lloyd Blankfein, who led the Wall Street giant during one of the most volatile eras in modern markets, told CNBC that he sees the conditions forming for another major dislocation—though its precise source may not yet be visible.
Blankfein’s reasoning is rooted in history. He pointed out that the U.S. has consistently faced “a crisis of the century” every few years. From the sovereign debt issues of the 1990s to the dot-com bust and then the subprime mortgage collapse, the timeline of recurring shocks suggests that markets are often blindsided. “There’s a lot of one-percent risks, but it’s not a one-percent risk that something bad will happen,” he said. “I’m saying we’re due. And it doesn’t matter you can’t see where it’s coming from.”
For advisors, this perspective resonates as a reminder that market complacency often sets the stage for unexpected turbulence. While current fundamentals appear strong—stocks hovering near record highs, the economy still showing resilience despite clear weak spots—the undercurrents in credit markets may deserve closer attention.
Where the Pressure Could Build
Blankfein highlighted leverage and credit as the most likely catalysts of disruption. Historically, excessive leverage—whether visible or hidden—has been the foundation of most crises. “It usually revolves around leverage. And, in this time, now, probably credit—leverage in places that you don’t see it,” he noted.
Advisors have been here before. The signs often appear benign at first, only to compound into significant systemic stress. Blankfein outlined several red flags worth watching in today’s environment:
1. Credit Spreads at Historic Lows
Credit spreads, which measure the yield premium corporate borrowers pay over safe-haven Treasurys, remain exceptionally narrow. In late August, the ICE BofA U.S. High Yield Index Option-Adjusted Spread stood near 2.84%, close to historic lows.
On the surface, narrow spreads reflect investor confidence. But seasoned market participants recognize that such levels may indicate mispricing of risk. When investors underestimate the likelihood of defaults or downturns, spreads fail to compensate adequately. Advisors who recall the pre-2008 environment will recognize the danger in a market that stops demanding proper risk premiums.
In this context, narrow spreads serve less as reassurance and more as a potential warning signal—particularly given uneven performance across industries and growing cracks in parts of the broader economy.
2. Surge in Private Credit
Another area of potential vulnerability is the extraordinary growth of private credit. Once a niche market, private lending has exploded into one of the fastest-growing segments of asset management. Investors, starved for yield, have flocked to private credit opportunities that promise higher returns than traditional fixed income.
According to JPMorgan Private Bank, assets under management in private credit are expanding at an annual pace of 14.5%. This rapid growth has pulled in not only traditional asset managers but also insurers, pension funds, and retail-leaning products.
Blankfein flagged this trend as a potential area where leverage and opaque risks may be accumulating. “People trying to goose their returns a little bit by leveraging up in kind of odd ways,” he said, pointing specifically to insurers active in the private credit space.
For advisors, the lesson is clear: the search for yield can quickly morph into a build-up of hidden risks. Private credit often lacks the transparency and liquidity of public markets, raising questions about valuation, counterparty strength, and systemic exposure. Regulators may eventually scrutinize whether these assets are being marked realistically. “If I were an insurance regulator at some point, I might say, are those assets really worth what you say they’re worth?” Blankfein added.
Balancing Caution with Optimism
Despite his warnings, Blankfein isn’t bearish on the U.S. economy or the market outlook. On the contrary, he remains bullish on equities and sees strong reasons for long-term optimism.
The Federal Reserve appears poised to lower interest rates, which could further support risk assets and extend the bull market. Advisors have already begun positioning portfolios for this environment, considering the impact of cheaper borrowing costs on equities, real estate, and credit.
Blankfein also pointed to technological innovation—particularly artificial intelligence—as a generational growth driver. “The investing environment looks phenomenal,” he said. While acknowledging his bearish thoughts, he remains fully invested in equities. “I have all these bearish thoughts, but I’m still 100% in on equities. I’ve lived through waves of technology and experienced things that changed the world. And I experienced things that changed our fortunes because we overinvested in stuff.”
This duality—skeptical of hidden risks but confident in the market’s long-term trajectory—echoes a theme many advisors must balance in client conversations. Managing investor psychology requires acknowledging both the potential for volatility and the opportunities that come from structural innovation and secular growth.
Goldman’s Outlook Aligns
Interestingly, Blankfein’s perspective largely aligns with the current outlook from his former firm. Goldman Sachs economists have described today’s environment as the early stages of a new secular bull market.
Their strategists highlight opportunities across technology, services, and manufacturing. They also emphasize the need for global diversification, pointing to attractive prospects outside the U.S. For wealth advisors, this framework reinforces the importance of avoiding home-country bias and identifying sectors positioned for long-term secular growth.
What This Means for Advisors
Advisors today are tasked with reconciling two seemingly opposing truths:
-
The market remains buoyant, supported by resilient fundamentals, accommodative policy shifts, and transformative innovation.
-
Under the surface, credit markets and leverage dynamics may be sowing the seeds of the next disruption.
Blankfein’s perspective provides a roadmap for conversations with clients. Advisors can use these insights to:
-
Highlight the Importance of Risk Awareness
Clients should understand that periods of calm often mask the build-up of systemic risks. Just as 2007 felt benign before the storm, today’s narrow spreads and private credit boom require vigilance. -
Position Portfolios for Flexibility
Maintaining diversification, liquidity, and balanced exposures can help weather a sudden credit shock without abandoning growth opportunities. -
Educate on Private Credit
Many high-net-worth investors are increasingly intrigued by private credit products. Advisors can play a critical role in explaining the risks—illiquidity, opacity, and potential valuation concerns—alongside the potential rewards. -
Frame Technology as a Secular Tailwind
While caution is warranted in credit, innovation continues to drive wealth creation. Positioning portfolios to participate in themes like AI, digital infrastructure, and advanced manufacturing can align client assets with long-term growth trends. -
Prepare for Policy Shifts
With the Fed signaling rate cuts, advisors should consider how lower yields may reshape asset allocation strategies. Equities, credit, and alternatives may all react differently, and proactive adjustments could capture opportunities while managing downside risk.
Navigating the Next Cycle
The lesson from Blankfein is not to retreat from markets but to prepare intelligently. Advisors know that volatility is inevitable, but with preparation, it can be managed and even turned into opportunity.
Clients will look to their advisors not only for returns but also for reassurance when risks materialize. By staying ahead of the signals, maintaining a balanced view, and keeping communication clear, advisors can guide clients through both the optimism of a secular bull market and the potential turbulence of hidden credit risks.
Blankfein’s message ultimately echoes the timeless truth of wealth management: cycles come and go, crises emerge unexpectedly, but disciplined strategy and forward-looking planning remain the advisor’s best tools for safeguarding and growing client wealth.
At this moment, advisors have a unique opportunity: to capture the upside of transformative innovation while keeping a close eye on leverage and credit markets that may hold the seeds of the next downturn. For those guiding clients through uncertainty, the balance of optimism and caution is not just strategy—it’s fiduciary duty.
