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Goldman Sachs sees historically high Risk Appetite Indicator for 2026

By Hillary Remy TheStreet

Updated May 16, 2026 9:35 AM

The stock market has been rallying hard. Earnings have been strong. Investor confidence has surged. On the surface, it looks like a textbook risk-on environment. Goldman Sachs agrees with that read.

And it thinks that's exactly why investors should pay close attention to what it's seeing right now.

The bank published a note on May 13 titled "Macro Headwinds vs. Micro Tailwinds," authored by strategists Andrea Ferrario, Christian Mueller-Glissmann, and Alessandro Giglio. What it found has not been seen in markets since 2000.

Goldman's Risk Appetite Indicator just hit its highest level since 2021

Goldman's proprietary Risk Appetite Indicator rose above 1.1 this week, surpassing the elevated levels seen at the start of 2026 and reaching the highest reading since 2021, according to Seeking Alpha. That places the current reading in the 99th percentile of all observations since 1991.

Using a longer historical proxy extending back to 1950, the indicator has spent only 2% of its time above 1.0. The level it has reached is genuinely rare.

The rebound in risk appetite has been driven by a combination of optimism around an end to the Middle East conflict, strong earnings growth across regions, and a tech-sector lift fueled by AI-related capital spending. Investor positioning has also broadly turned more bullish, reversing most of the defensive shift that followed the start of the Middle East war in late February.

Both the macro story and the corporate earnings story are pulling in the same direction right now, and markets are pricing in a great deal of that optimism simultaneously.

Why combination of risk appetite, equity momentum is more alarming signal

Elevated risk appetite alone, Goldman notes, is not a reliable signal to turn bearish. Investor confidence can remain high for extended periods when macro conditions stay supportive, and the bank has seen that pattern repeat across multiple cycles. The more unusual development in this note is what's happening with equity momentum at the same time.

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The one-year rolling z-score of U.S. equity momentum rose above 3.0 last week, one of the strongest readings since 2000. Goldman's analysis shows there has historically been no strong link between risk appetite and equity momentum, which makes the current moment more exceptional than either reading alone would suggest.

This is the first time since the start of 2000 that the bank's Risk Appetite Indicator has been above 1.0 and the equity momentum z-score has simultaneously been above 3.0.

Goldman looked back at eight comparable episodes since 1962, when both risk appetite and momentum were at similarly elevated levels. Three of those eight episodes were eventually followed by a bear market within two years. But the bank is careful about the timing implication: In 1999 and in 2021, equity prices continued rising for nearly 12 months after those indicators first reached elevated levels.

An extreme reading is not a precise market-timing tool. It is a warning about the risk-reward setup for investors entering now.

What history says about S&P 500 forward returns from this setup

Goldman's historical data on the eight comparable episodes shows that forward equity returns from the S&P 500 were positive on average but below typical unconditional returns. The average one-month return was 2.4%, the three-month return was 1.9%, the six-month return was 4.1%, and the 12-month return was 6.8%, compared with unconditional returns since 1961 of 0.7%, 2.1%, 4.4%, and 9.0%, respectively.

In plain terms, the market can keep going up, but the probability of large gains is lower, and the probability of corrections is higher.

For equity momentum specifically, the picture is different. Momentum returns were flat on average but highly volatile following these episodes. Crucially, in episodes where momentum eventually sold off, the unwind tended to start shortly after the indicators first reached elevated levels, not months later.

Goldman Sachs just published a note describing a market condition its data shows has not occurred in a quarter-century. Yeung/Getty Images

Goldman's U.S. strategists said narrow breadth, as in the current environment, always resolves eventually, either through a catch-up of lagging stocks or a catch-down of leaders, and that resolution tends to come with more volatility for momentum strategies.

What Goldman recommends investors do from here

Goldman's tactical asset allocation is modestly neutral over three months, with an overweight on cash and neutral positions on equities, bonds, and commodities. Over 12 months, the bank remains modestly pro-risk, favoring equities over cash and bonds.

The bank's economists have cut their 12-month U.S. recession probability to 25%, citing resilient economic activity and easing financial conditions. Goldman explicitly says it is not turning bearish on risky assets as long as the macro backdrop stays supportive, according to Seeking Alpha.

But the note makes a specific tactical recommendation that reflects the bank's concern about asymmetry. Goldman says put spread collars look attractive as a way to limit downside. Call option positioning across equity markets has turned sharply more bullish since March, with call-to-put volumes, call skew, and spot-volatility correlations all shifting higher.

Because call skew is elevated, selling an out-of-the-money call can fund a large share of the cost of buying a put spread, making the hedge relatively efficient at current market levels.

Key figures from Goldman's May 13 risk appetite note:

Risk Appetite Indicator reading: Above 1.1, the 99th percentile since 1991 and highest since 2021; the RAI has been above 1.0 only 2% of the time since 1950
Equity momentum z-score: Above 3.0 for the first time simultaneously with RAI above 1.0 since 2000; one of the strongest momentum readings since that year
Historical analogues: 8 comparable episodes since 1962; three of eight followed by a bear market within two years; equity peak followed much later in 1999 and 2021
Average S&P 500 forward returns in comparable episodes: 2.4% at one month, 1.9% at three months, 4.1% at six months, 6.8% at 12 months, below unconditional historical averages
Current Shiller P/E in Goldman's comparable episode table: 39.6x as of May 5, 2026, above the historical average of 26.5x for comparable episodes
U.S. 12-month recession probability: Lowered to 25% by Goldman economists, citing resilient economic activity and eased financial conditions
Tactical positioning: Goldman is neutral on equities for three months; modestly overweight for 12 months; recommends put spread collars to limit downside

Source: Goldman Sachs May 13 note to investors

What Goldman's message means for investors watching market's next move

The message from Goldman is not that the market is about to fall. The bank's own positioning remains tilted toward risk assets over a 12-month horizon.

The message is more specific: The combination of extreme risk appetite, extreme equity momentum, elevated valuations at a Shiller P/E of 39.6 times, and crowded bullish options positioning creates an environment where the upside from here is narrower and the cost of being wrong is higher than it has been at most points in this cycle.

Goldman's strategists put it plainly in the note. This backdrop makes put spread collars particularly attractive and the risk-reward asymmetry less favorable. That is a precise institutional expression of a view that many investors are beginning to share but have not yet acted on.

When Goldman publishes a note describing a market condition that has not been seen since 2000, and uses that observation to recommend defensive hedging rather than more aggressive positioning, the underlying message is worth taking seriously, even if the timing of any correction remains impossible to call.

The most important variable from here is whether the macro backdrop stays benign. Goldman's own data show that when macro conditions remained supportive after similar episodes, forward returns were skewed modestly positive. When macro surprises turned negative, there was significantly more downside risk.

The next several weeks of economic data, Federal Reserve communication, and corporate guidance will do more to determine which of those paths the market takes than any single indicator, no matter how rare its reading.

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This story was originally published May 16, 2026 at 9:17 AM.