The Goldman Sachs CEO is worried the market is overindulging in greed.
Currently, the stock market is, for all intents and purposes, doing fairly well for itself. Most major indexes are up, stocks are trading high, and there’s lots of activity in up-and-coming sectors like cryptocurrencies and start-up companies, not to mention the surge of new investors brought in by meme stocks. However, as is often the case with sudden, rapid growth, if the market continues on this trajectory, it may soon become oversaturated, and the bubble could burst.
In an interview at the Bloomberg New Economy Forum in Singapore, Goldman Sachs CEO David Solomon expressed some concerns about the current state of the market, not in terms of its performance, but in terms of its raw desire for profit. “When I step back and I think about my 40-year career, there have been periods of time when greed has far outpaced fear. We’re in one of those periods,” Solomon said.
“Generally speaking, my experience says that those periods are not long-lived. Something will rebalance it and bring a little bit more perspective,” Solomon added.
Goldman CEO @DavidSolomon warns markets could face a rocky time ahead as the world tries to emerge out of a pandemic.
“There have been periods of time when greed has far outpaced fear—we are in one of those periods of time,” he tells the #NewEconomyForum https://t.co/9sWa7tKUVm pic.twitter.com/ZbjtLBdgJ5
— Bloomberg (@business) November 17, 2021
Solomon is not off-based in his estimations; according to the CNN Business Fear & Greed Index, which gauges current investor sentiments, investors are currently showing signs of extreme greed. According to Solomon, this was primarily caused by the large influx of stimulus from the government as a result of the pandemic. All of that extra cash has led to inflation of stock prices.
The Federal Reserve has been considering clamping down and tapering bond purchases, but Solomon isn’t sure the market is really ready for that. “There is a chance that central banks can unwind this massive stimulus in a way that doesn’t create some sort of a taper tantrum or some sort of real shock to markets, but there’s also a chance that they can’t be done that way,” Solomon said, adding that if long-term interest rates keep rising, “that in and of itself will take some of the exuberance out of certain markets.”