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Stocks started off to their worst year ever and investors were worried about a recession.
Now, stocks are rallying.
And according to Peter Oppenheimer, chief global equity strategist at Goldman Sachs, these huge swings are really a function of investor uncertainty related to the "third wave" of the financial crisis currently playing out.
On Goldman's in-house podcast, "Exchanges at Goldman Sachs," Oppenheimer outlined how this impacts markets, saying that, "what's interesting, again, I think, is that the two outcomes, the two trajectories, imply almost diametrically opposite strategies."
In Oppenheimer's view, this "third wave" can lead to aggressive deflation and policy response, in which case investors would want to be positioned in less risky assets like bonds. Or, we could see emerging market economies balance and create a "sustained economic recovery globally."
The second outcome is Oppenheimer and Goldman's base case, and if this comes to pass investors would want to be long risk assets like stocks.
The problem now, Oppenheimer said, is that markets are not sure which of these outcomes will come to pass. The market response, then, has been wild oscillations between pessimistic and optimistic positioning.
"I think this risk of moving from one to the other is also an explanation of these volatile swings that we're getting, both in the overall markets, but also the rotations, the violent rotations that we're seeing," said Oppenheimer.
And as long as investors don't know the outcome, Oppenheimer concluded, the volatility and massive swings between positives and negatives will continue.