(Bloomberg) — Goldman Sachs Group Inc (NYSE:) is issuing words of caution for dip buyers plunging back into stocks: The December volatility breakout has room to run — and risk gauges aren’t yet flashing buy signals.

Christian Mueller-Glissmann is the managing director for portfolio strategy and asset allocation at the firm. He said that the Federal Reserve’s hawkish tilt, as well as the spread of the omicron variation, will create trading difficulties in the short-term.

According to Goldman Sachs, although it is lower than zero following a wave of selling that brought down big tech, it still has the potential to fall further. 

“Without any view on better macro you would want the RAI closer to -2 before adding risk,” said Mueller-Glissmann in an interview. “A drop below or near -2 could create a very good opportunity to re-risk and position more procyclical, especially if growth stabilizes post-omicron.” 

His caution contrasts with a big turnaround in risk assets this week on signs the new strain won’t be as virulent and deadly as feared and won’t drive the economic recovery off-course.

Unsurprisingly, the Deutsche Bank AG gauge indicates risk assets could be nearing a bottom.

Inflation markets are a sign of fragile sentiment. Investors are paying up to hedge against wilder swings than what they’ve experienced already. Last week’s run of turbulence was the worst in a year, with the notching up or down moves of at least 1% on five straight days through Friday. 

It is currently at 27.7 points, seven points more than the average year-end. The front-month forwards contract remains higher than the ones for subsequent months. Investors are anticipating near-term turmoil to continue.

Continue reading: Trading Traders Discover Troubling Clues In VIX To More Stock Turmoil 

However, the Deutsche Bank cross-asset momentum measurement is still firmly negative and near historical lows.

“The breadth is now approaching a place where it does usually turn around so we’ll expect some asset classes to find a bottom here,” Parag Thatte, strategist at Deutsche Bank, said in an interview. “The turnaround should be in the short term, it should be in the next three-four weeks.”

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