tl;dr
Meena Flynn of Goldman Sachs insists the market's 10th decile valuation doesn't spell doom, citing 200% returns since 2016 and $170B in untapped liquidity. Despite 80% odds of a 10% pullback, she bets on earnings momentum and Fed policy shifts to fuel growth.
**Goldman Sachs’ Meena Flynn: Bulls Still Bullish Despite Market Warnings**
Meena Flynn, co-head of Goldman Sachs’ global private wealth management unit, is sending a bold message to investors: despite the looming threat of a market correction, the financial giant is still betting big on stocks. In a recent CNBC interview, Flynn acknowledged the risks but emphasized that the current environment offers opportunities for those willing to stay the course.
**The 10th Decile Dilemma**
Flynn noted that the stock market is currently in the 10th decile—a measure of valuation levels that signals extreme overvaluation. “There’s an 80% probability of a 10% drawdown,” she said, referencing the likelihood of a sharp pullback. Yet, she quickly pivoted to a critical point: valuations alone don’t dictate future returns. “We’ve been in that 10th decile since December 2016, and the market’s actually returned 200% since then. So we’re really focused on earnings.”
This argument hinges on the idea that even at lofty valuations, strong corporate performance can sustain growth. Flynn’s team is betting that earnings momentum will outpace the fear of a correction.
**Capital Waiting in the Wings**
Another key factor fueling Goldman Sachs’ optimism? A mountain of cash poised to enter the market. Flynn highlighted that hedge funds are holding positions in the 40th percentile of net longs—a relatively light stance—while mutual funds are sitting on $170 billion in cash. “There’s room,” she said, adding that the market has “right tail risk” (upside potential) as well as “left tail risk” (downside volatility).
This liquidity, she argued, could act as a catalyst if conditions improve. “There’s actually a good amount of right tail risk to the market,” she emphasized, suggesting that a shift in sentiment could unleash pent-up demand.
**The Fed’s Role in the Equation**
Flynn also pointed to the Federal Reserve’s loosening monetary policy as a tailwind. With $7.3 trillion parked in money market funds, she noted that rising interest rates could prompt investors to move capital out of safe havens and into riskier assets. “As rates start coming in, you start to see that go out the risk curve,” she said, painting a picture of a market primed for a potential rally if the Fed continues its accommodative path.
**The Big Takeaway**
Flynn’s comments reflect a nuanced view of the market: yes, corrections are inevitable, but history shows that patience and focus on fundamentals can pay off. For investors, the lesson is clear—while caution is warranted, the current environment may offer a rare chance to capitalize on undervalued opportunities.
As Flynn put it, “The market’s not going to be at these levels forever.” The question is, will investors stay invested long enough to see the next move?