Goldman Sachs flags risk appetite at highest since 2021, urges buying dips

Goldman Sachs' risk appetite index for US stocks has climbed above 1.2, the highest level since 2021, showing elevated risk sentiment even as the firm maintains a bullish 12-month outlook.

Goldman Sachs' risk appetite index for US stocks rose above 1.2, the highest since 2021, showing elevated risk sentiment and potential for a pullback in a market heavily concentrated in technology shares.

"Because our macro baseline remains constructive and we benefit from continued strong earnings growth driven by AI capital expenditure, we maintain our 12-month overweight equities stance and would look to buy on dips in the coming months," Christian Mueller-Glissmann, an analyst at Goldman Sachs, said.

The index crossing 1.2 marks the highest reading since 2021, a period that preceded a significant market correction. The previous peak in risk appetite occurred as the Federal Reserve began shifting toward tighter monetary policy, which eventually triggered a rotation out of growth stocks. Goldman warned that the current elevated reading increases the probability of a pullback, particularly given the concentration of capital in technology stocks.

The firm's base case assumes US inflation will normalize and the Strait of Hormuz will reopen, creating a more favorable macroeconomic backdrop. A resolution of tensions in the Middle East would reduce energy price uncertainty and remove a key headwind for global equities.

The warning comes as equity markets have rallied on AI optimism, with capital concentrated in a narrow group of mega-cap technology names. A correction from current levels could disproportionately affect those stocks, which have driven most of the market's gains. Goldman's buy-the-dip recommendation suggests any pullback would be temporary, but the timing and magnitude remain uncertain.

Tech Concentration Raises Correction Risk

The concentration of capital in technology stocks has been a defining feature of the recent rally. The so-called Magnificent Seven group of mega-cap tech companies has accounted for a disproportionate share of index-level gains, creating what some strategists describe as a two-tier market. Goldman's warning suggests that this narrow leadership makes the market vulnerable to sharp reversals if sentiment shifts.

The bank's base case, however, remains constructive. Goldman expects US inflation to continue its normalization path, which would support the Federal Reserve's rate-cutting cycle. The reopening of the Strait of Hormuz — a critical chokepoint for global oil supplies — would ease energy price pressures and reduce geopolitical uncertainty, further supporting equities.

Broader Bullish View

Goldman's recommendation to buy on dips aligns with its broader bullish stance on global equities. The firm recently lifted its 12-month STOXX 600 target, citing resilient earnings across European markets. It also upgraded Taiwan and South Korea stocks, pointing to an intensifying Asian rally driven by semiconductor demand and AI-related investment.

The bank's cross-regional optimism reflects a view that the AI-driven earnings cycle remains in its early stages, with capital expenditure on data centers and AI infrastructure continuing to accelerate. This spending is expected to support revenue growth across technology supply chains globally, from US chip designers to Asian semiconductor manufacturers.

Goldman's dual message — a short-term correction warning paired with a long-term bullish recommendation — reflects the tension between elevated positioning and a still-favorable macro backdrop. For investors, the key question is whether any pullback will be a buying opportunity as Goldman suggests, or the start of a deeper rotation.

This article is for informational purposes only and does not constitute investment advice.