Daily Traders Edge

Goldman Sachs says dual rally in stocks and bonds make both expensive – CNBC

July 11
14:10 2016

Both stocks and bonds looked expensive after rallying together and were now vulnerable to a quick sell-off, Goldman Sachs said.

The market had increasingly treated the risks from the U.K. vote to exit the European Union (EU) as a negative local economic growth shock, affecting mainly Britain and Europe, but one that was likely to drive global central banks to ease further, Goldman said in a note on Monday.

That’s driven yield-chasing fund flows back into both stocks and bonds, it noted, increasing the risks of a quick reversal.

“Markets have become very dovish relative to what central banks might deliver and against the current macro backdrop,” it said. “Bonds could sell off sharply as a result of central bank disappointment, positive inflation and data surprises and/or illiquidity, which would likely drive weakness in equities and other risky assets, at least initially.”

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