Goldman Sachs Risk Appetite Index Soars to Highest Level Since 2021, Rare "Double High" Combination Appears for First Time in 26 Years

Source: Global Market Broadcast

Indicator Reaches Extreme Levels

Goldman Sachs recently warned that its risk appetite indicator surged above 1.1 this week, reaching its highest level since 2021 and ranking in the 99th percentile since records began in 1991. This indicator is based on high-frequency data from five categories: fixed income, equities, liquidity, commodities, and credit. Since 1950, it has been above the level of 1 for only about 2% of the time.

Meanwhile, stock momentum has shown a significant increase. For example, the iShares MSCI USA Momentum Factor ETF has risen 33% since its March 30 low, while the S&P 500 Index increased 18.25% during the same period, driving the momentum Z-Score above the high threshold of 3.

This Combination Appears for the First Time in 26 Years

The Goldman Sachs strategists led by Andrea Ferrario noted that this is the first time since early 2000 that risk appetite and momentum performance have both been at such extreme levels simultaneously. The report states: "The current market environment is unique," and this combination is extremely rare in history.

Looking back at data since 1962, when the RAI exceeded 0.9 and the U.S. stock market momentum Z-Score was above 2.0, there were 8 similar occurrences, 3 of which evolved into bear markets within the following two years. However, Goldman Sachs also pointed out that in 1999 and 2021, the stock market only peaked roughly 12 months after this signal first appeared.

A Cautious Signal Rather Than a Sell Indicator

Goldman Sachs emphasized that this signal does not mean the market will immediately peak; it is not sufficient to judge a turning point based on this alone. Strengthened corporate earnings still provide some support for valuations, and Goldman Sachs economists have lowered the probability of a U.S. recession in the next 12 months to 25%.

The report points out that the current rebound in risk appetite is mainly concentrated in the stock market, with relatively cautious capital inflows into cyclical sectors and high-yield bonds, indicating that investors are not chasing highs across the board. "To form a clearer bearish signal, more direct evidence is needed, such as a notable weakening in fundamentals or a turn to negative price momentum."