Goldman's risk appetite indicator hits highest level since 2021

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Goldman Sachs’ Risk Appetite Indicator, or RAI, has surged above 1.1 this week, reaching its highest reading since 2021 and landing in the 99th percentile since 1991, coinciding with a record-setting equities bull run, according to a Friday note from the firm’s market strategist Tony Pasquariello.

The indicator has surpassed levels seen at the start of the year, with investor positioning broadly turning more bullish and reversing most of the declines that followed the outbreak of war in the Middle East. Historical analysis extending the RAI back to 1950 confirms such elevated readings are rare—while the indicator has been positive roughly half the time, it has spent only 2% of that period above 1.0.

Despite the extreme reading, Pasquariello cautioned against reading too much into it as a contrarian signal. “As with other measures of sentiment and positioning, the signals tend to be most powerful when the setup is extremely bearish,” he wrote, adding that the prevailing market trend remains higher.

However, the strategist noted signs of speculative excess forming at market edges, pointing to a sudden rise in assets under management at leveraged semiconductor ETFs and a surge in single-stock call volumes.

“I approach things with open-mindedness and humility—and with an instinct that the next set of moves will be impulsive, in both directions,” Pasquariello wrote.

Drawing on 27 years of experience, he observed that while picking market bottoms is difficult, identifying tops is even harder—particularly during “a generational step change in applied technology.”

The strategist continues to favor a portfolio combining long equities (SPY [https://seekingalpha.com/symbol/SPY]) (DIA [https://seekingalpha.com/symbol/DIA]) (QQQ [https://seekingalpha.com/symbol/QQQ]), long oil (USO [https://seekingalpha.com/symbol/USO]) (BNO [https://seekingalpha.com/symbol/BNO]), and short bonds (SHY [https://seekingalpha.com/symbol/SHY]) (TLT [https://seekingalpha.com/symbol/TLT]) (ZROZ [https://seekingalpha.com/symbol/ZROZ]).

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