It isn’t much discussed in public – sort of like the crazy uncle who lost his fortune gambling on derivatives – but a recent Goldman Sachs portfolio strategy report nailed a discussion that is increasingly being voiced in institutional research reports from Macquarie to Balyasny among others. As global equities head to all-time highs – up near 20% since the US presidential election depending on your stock market yardstick – a concern regarding mean reversion theory is starting to become visible, documented in various research reports. A Goldman report, which had previously predicted a return of volatility occurring in a year, recognizes the issues but draws a different conclusion from those concerned about rapidly rising interest rates.

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BofA study shows increased concern regarding markets

Ian Wright and the European-based Portfolio Strategy Research team recognize the general sense of concern.

“Last week, global equities were heading to new all-time highs, further fuelling the fears of the end of the bull market,” the July 17 report titled “Climbing the peak” pointed out.

The Goldman report didn’t go into the logic behind near term concerns expressed in various research, including the Fed withdrawing quantitative dependence from the market and taking a balance sheet diet. While other analysts such as Jeffery Gundlach are concerned about rising interest rates – the impact of once free markets being allowed to more independently stand after years of suppression remains unclear.

The general concern comes as a new Bank of America Merrill Lynch report notes nearly half, 48%, of professional money managers think central bank policy is too stimulative. This is the highest level of dissatisfaction since August 2011, a point when aggressive central bank stimulative measures were on the verge of driving interest rates negative in Europe.

The survey noted the general market concern that drove Balyasny’s 2015 crash avoidance in today’s analysis: concerns over a policy mistake by US or European central banks and/or a crash in bond markets is keeping just over ¼ of respondents in a BofA July survey awake at night.

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Goldman Report says corporate profits keeping market strong

While bond market crash concerns linger, the once ballyhooed market growth meme, which reigned supreme at the start of the year, is waning. In January, when 62% of study participants predicted strong economic growth, the markets were running higher with abandon, as evidenced by US stock market benchmarks moving significantly past their monthly averages and breaching standard deviation levels used in certain mean reversion analysis.

Since that optimistic point, the S&P 500 moved from 2279 basis the end of January to trade today above 2471, breaking into new high territory. With these new highs come concerns, as evidenced in the BofA study. Currently, only 38% of money managers think a stronger economy is in the cards for the next 12 months, a drop of 240 basis points January to July 19.

But unlike the naysayers, such as Balyasny who are looking for a volatility pickup as the Fed withdraws its magical quantitative stimulus, Goldman has a different outlook.

“We don’t see the end of bull market as long as the macro backdrop remains supportive with global growth above trend and low recession risk while central banks remain accommodative,” the Goldman report noted, pointing to a significant caveat regarding central bank dovishness. “And while global equities are at new highs, so are earnings.”

While Goldman is high on earnings, those are increasingly seen as a concern in the BofA study. Investors predicting global profits will improve dropped to its lowest level since the election. This occurred as those predicting corporate earnings will drop more than doubled from 10% last month to 22% today.

The Goldman report, for its part, predicted the S&P 500 will finish the year near flat from current levels.