Goldman Sachs asset allocation research head Christian Mueller-Glissmann recently expressed concern over the rapid recovery of market confidence following a significant sell-off in global risk assets, which should be viewed as a worrisome issue. Investors can see the stock market plunge in early August as a "warning."

In early August, concerns about a possible recession in the US economy and the unwinding of yen carry trades caused a sharp decline in US stocks. The S&P 500 index fell 3% on August 5, marking the largest single-day decline since 2022. However, since then, due to expectations of a rate cut by the US Federal Reserve and improvements in several US economic data, US stocks have rebounded significantly. The S&P 500 index has rebounded more than 10% from its low on August 5, and the Dow has hit a new all-time high.

Regarding the market's intense reaction, Mueller-Glissmann stated that the events around August 5 were clearly a massive technical overreaction, so it was a buying opportunity. Afterward, there was a period of significant rebound, with holdings and sentiment at the upper limit of the range, with a bullish outlook.

However, Mueller-Glissmann warned that the current macroeconomic momentum is slightly weak. In fact, for the past month and a half, the US macroeconomy has experienced negative surprises, and economic surprises in Europe and other regions have also turned negative. "We are actually concerned about some adjustments. Although you hold long positions, the macroeconomic momentum is slightly weak."

Mueller-Glissmann believes that what is concerning now is how quickly the market returns to its previous levels. Market participants are currently faced with the challenge of stocks and risk assets completely reversing their previous losses and returning to previous levels. This definitely indicates that we are almost back to the problem we had a month ago.

When asked about the development of risk appetite in the coming months, Mueller-Glissmann mentioned an interesting phenomenon he discovered: risk appetite has not returned to previous levels. He pointed out that what has actually happened is that safe assets such as bonds, gold, yen, and the Swiss franc have not been sold off. "What I want to say is that although the S&P 500 index has returned to our previous levels, complacency hasn't. We are no longer in the same extreme bullish sentiment and position."

What should investors do next? Mueller-Glissmann has previously advocated for a 60/40 investment portfolio and now points out that in a turbulent market month, a balanced investment portfolio has performed extraordinarily well:

Think about it, the bond market has buffered most of the decline. If you look at a 60/40 investment portfolio, you will find that this is a flash in the pan. The maximum decline of a balanced investment portfolio in the USA or Europe is 2%. So in other words, the bond market balances the stock market, as we hope it would.

However, he also warned that the buffer provided by the bond market recently may not be as reliable in the near future:

I mean, given that you currently don't have as much buffer from bonds, tactically you may need to be a little more cautious with your risk assets, especially after experiencing this rise.

There are different ways to address this issue. Either you trim your risk assets slightly, or you can create alternative diversified products, which can be liquidity substitutes or covers using options, and so on.