Investors should assess their appetite for stocks “carefully, very carefully” given higher inflation and an S&P 500 that’s nearing fair trade value, said Abby Joseph Cohen, senior investment strategist at Goldman Sachs Group Inc.

“When you’re at fair value, there is no margin for error,” Cohen said in a Bloomberg TV interview Wednesday. “If there are disappointments, be it on interest rates or OPEC, that’s where you start to see a big increase in volatility within the market itself.”

Citing her colleagues who see 4,300 as fair value, Cohen said, “We’re sort of at a knife’s edge,” with the S&P index trading near 4,350 today. Against the unusual backdrop of low nominal yields and negative real yields, investors should consider their next moves “carefully, very carefully,” said the strategist, whose market assessments are closely followed on Wall Street.

The Cboe Volatility Index, best known as a gauge of fear in equity markets, suggests that concerns are steadily rising among investors as trading volume has slowed. The benchmark known as the VIX rebounded this week after declining to its lowest level since February 2020.

When asked what types of stocks could be sustainable in the current market environment, Cohen said that investors should look past broad sector issues to focus on “idiosyncratic opportunities,’ such as industrial firms embracing renewable energy “that have repositioned themselves well for the 21st Century needs.”