If you think that rampant risk-taking has pushed financial markets out of whack, you aren’t alone: Goldman Sachs CEO David Solomon agrees.
“When I step back and think about my 40-year career, there have been periods of time when greed has far outpaced fear,” he told Bloomberg.
“We are in one of those periods. My experience says those periods aren’t long lived. Something will rebalance it and bring a little bit more perspective.”
Since the Covid pandemic emerged in March 2020, massive monetary and fiscal stimulus has sent prices soaring for everything from speculative stocks to junk bonds.
Shiba inu, a satire digital currency that is a spinoff of dogecoin, another satire crypto currency, jumped to a market capitalization of $42 billion last month.
So what’s going to end the party?
“Chances are interest rates will move up,” Solomon said. “And if interest rates move up, that in of itself will take some of the exuberance out of certain markets,” Solomon said.
The Fed has begun tapering its bond buying and expects to finish the job around the middle of next year. Economists predict that it will then begin raising interest rates -- perhaps once in 2022, followed by several hikes in 2023.
As for stocks, the S&P 500 hit a record of 4,718, just 12 days ago. It has jumped 25% year to date, 50% over the past two years and 115% over the past five years.
Meanwhile, the 10-year Treasury yield has dropped to 1.64% from 3.23% Oct. 1, 2018. To be sure, it has rebounded from its July 27, 2020 level of 0.54%.