Goldman Sachs’ chief economist warns a pullback for stocks could be coming soon


A trader at the New York Stock Exchange (NYSE) at Wall Street in New York City.

Johannes Eisele | AFP | Getty Images

Goldman Sachs Chief Economist Jan Hatzius said that U.S. stocks and bond markets could possibly “take more of a breather” in the near term, after hitting record highs last week. 

U.S. stock markets have had a bumper start to 2021, despite ongoing concerns about the coronavirus pandemic.

On Friday, markets closed at record highs. Since the trough in late March, the S&P 500 and Dow Jones Industrial Average have both added nearly 70% and the Nasdaq has soared over 80%.

Speaking to CNBC at the Goldman Sachs Strategy Conference on Monday, Hatzius shared his outlook for U.S. stocks looking ahead, and explained why market valuations might stop moving “relentlessly higher.” 

A pause could come as result of a renewed focus on the Federal Reserve potentially tapering its stimulus program, and the back-up in long-term interest rates that’s currently underway, he told CNBC’s Julianna Tatelbaum. 

The 10-year U.S. Treasury yield broke the 1% mark last week, following a Democratic sweep in the Georgia Senate runoff elections and Congress confirming Joe Biden’s victory in the presidential election. The benchmark yield hit 1.18% on Tuesday.

Treasury yields act as a benchmark for all global bonds, meaning companies will see the interest rate on their debts rise. This means it could cost companies more to pay back debt, putting more strain on firms’ finances and therefore hurting their share prices.

Meanwhile, any tapering of the Fed’s quantitative easing program would mean there is less money being pumped into the economy, which could also hurt the stock market as it did in 2013. 

Despite a possible pullback in markets in the short term, Hatzius said Goldman Sachs was positive on U.S. stocks in the long term and believed they would continue to move higher.

“We still think it’s a friendly environment for risk assets, for equities and credit,” he said.

“We’re early in the business cycle, there’s still plenty of slack in the economy in the U.S. and even more so in other economies.”

He explained that inflation remained below target, and central banks and fiscal policy were still pretty focused on bringing economic activity back, which was “generally pretty positive for markets.”

Last week, Goldman upgraded its forecast for U.S. economic growth to 6.4%, from 5.6% for 2021. This followed the projected Georgia runoff result, giving Democrats control of the Senate and making it more likely further economic stimulus would be passed.

Hatzius also highlighted that early data indicated there had also been some structural improvements in economic productivity, such as the disappearance of unproductive firms due to the pandemic and businesses cutting costs.

“There actually seems to be an improvement relative to the pre-pandemic period, it seems like the pandemic maybe catalyzed some of the productivity improvements so that’s also pretty positive,” he said. 



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