Goldman Sachs's risk appetite measure is at its highest point in history
"Valuations are at very high levels. And that concerns us when it comes to making progress in stocks, unless you maintain a very high level of optimism," Christian Mueller-Glissmann, senior multi-asset strategist valuations, said at a conference in London on Monday.
"This is a chart which a lot of people have in the back of their mind right now. It's our risk appetite indicator. That essentially shows you across asset classes what the risk appetite is. And it has equity risk premium in there it, it has VIX, it has everything that reflects how bullish markets are and it's real time,"
And guess what, in the middle of December, that indicator had the highest level in the history of the indicator. We are not at the beginning of this optimism trade, we're really in the middle of that optimism trade."
Here is the chart:
Markets have been buoyed by a combination of easy monetary conditions, with interest rates staying low, combined with the prospect of more government spending, especially in the US. The new Donald Trump administration is expected to cut corporate and personal taxes and boost spending, sending stock markets up to record highs.
Jan Hatzius, chief economist at Goldman Sachs said at the same conference: "The tax cuts will be constrained because the US is already running a fairly high deficit. But nevertheless we expect an annual fiscal easing of $200 billion annually. We think that will take effect on growth at the end of 2017."