According to Goldman Sachs $GS, investors are wearing rose-colored glasses. Should they take them off, or don't they have them on in the first place?

Peter Oppenheimer, chief global equity strategist at Goldman Sachs, doesn't have a reputation for scaring investors for no reason. But now he's saying something that investors, after a great year, may find hard to hear.

The past twelve months, according to him, were a phenomenal performance not only on the S&P 500 but also on other global markets, and that's exactly why he expects lower returns from this point onward. Specifically, mid to high single digits for the next year. The S&P 500 is already up 12% this year.

What's the core of the problem?

The yield on the U.S. ten-year Treasury rose today to 4.81%, the highest since November 2023, the thirty-year reached 5.29%, and the two-year is holding around 4.4%. If this were a U.S. problem, it could be blamed on the deficit. But the Japanese ten-year yield jumped above 3% for the first time since 1996, the British is at its highest since mid-2007, and the German has returned to levels from 2011, i.e., from the peak of the European debt crisis.

When the U.S., Japanese, British, and German markets sell off all at once, it's not a coincidence but a signal. Investors are losing faith that governments can handle their debt and inflation simultaneously. The U.S. deficit is around two trillion dollars, and this year alone $MSFT and $AMZN issued bonds worth 220 billion dollars. The supply of debt is growing faster than the appetite to buy it, so buyers logically want a higher premium.

By the way, we discussed this problem on the stream too. You can watch it right now on Bulios YTB.

The trigger of the whole chain of events is oil. After the escalation of tensions around Iran and the Strait of Hormuz, it got back above 90 dollars a barrel. More expensive energy spills over into transportation, agriculture, and manufacturing, and commodity prices like corn or sugar have shot up in recent weeks.

The worst part is that the market ignored these moves for most of the year. This pattern was described by strategist Matt Maley of Miller Tabak by saying that higher yields don't bother stocks until they suddenly start to. And on top of that, the central bank regime is changing.

The market now assigns roughly a 66% probability that the Fed, under Kevin Warsh, will raise rates this month, a jump from about 40% a week ago. Inflation in the EU jumped to 3.3% in August, and a hike is also expected from the ECB.

Nobody here is predicting a crash, rather slower growth. A scenario where stocks still rise, but slowly and with higher volatility. That, however, doesn't bother a long-term investor. It's mainly traders who should be careful.