Investing.com -- Goldman Sachs warned in a note Monday that equity markets are vulnerable to further corrections as stretched valuations collide with the weakening macro backdrop.

Analyst Peter Oppenheimer said rising oil prices are worsening the “growth/inflation mix” at a time when equity risk premia have fallen “back to pre-GFC levels.”

Oppenheimer noted that Brent crude near $100 “reflects the sharp increase in geopolitical risk,” with Goldman Sachs commodity analysts now assuming “21 days of reduced flows through the Strait of Hormuz.”

Even the central case, he said, would slow U.S. GDP to 2.2 percent and raise the bank’s recession probability to 25 percent.

Despite those pressures, U.S. equities remain only about 4 percent below their peak, and Oppenheimer warned that valuations across most regions now sit “well above long-run averages.”

He added that stocks are “more expensive than they were going into the 2022 shock,” leaving markets exposed if growth expectations soften.

Rotation beneath the surface is also said to be signalling fragility. Oppenheimer stated that Cyclicals now trade “at almost the same valuation as Defensives,” which is “rare outside of cycle lows” and leaves sectors “vulnerable to weaker growth expectations.”

He also pointed to tightening financial conditions, early signs of credit stress and weakening labour-market momentum.

Positioning compounds the risk. Goldman Sachs noted that its risk appetite gauge remains far from capitulation, leaving investors “long risk, short protection.”

Still, Oppenheimer stressed the correction risk does not imply a lasting downturn, noting that strong earnings and solid balance sheets mean “geopolitical shocks often present opportunity rather than lasting damage.”