Goldman Sachs analyst Andrea Ferrario informed clients on Tuesday that investor sentiment has strengthened markedly, with the firm's Risk Appetite Indicator (RAI) reaching 1.09. Ferrario characterized this reading as the "highest level since 2021" and said it sits in the 98th percentile when measured against data back to 1991.
The bank noted that the gauge stayed elevated even amid ongoing policy and geopolitical uncertainty, and that the rise reflects a broad-based tilt toward risk across global markets. Goldman highlighted that 17 out of the RAI's 27 component inputs now register above 0.8 in z-score terms, indicating a cluster of bullish signals.
Among the most prominent contributors to the current risk-on stance, Goldman singled out four specific spreads and relative moves: Small cap versus Large cap equities, Emerging Markets versus Developed Markets equity, Bonos spreads, and the AUD/JPY currency pair. Those variables provided some of the strongest positive z-score readings within the RAI framework.
Gold was identified by the bank as the largest outlier in the dataset. Ferrario noted that if gold were excluded from the index, the RAI would be close to 1.2, which points to even stronger underlying appetite for risk when bullion's divergence is set aside.
Goldman attributed the latest upward movement primarily to its PC1 factor, labeled "Global growth," and said that both positioning and sentiment metrics remain at bullish levels. The firm emphasized the rarity of the current elevation in the RAI, noting there have been only six instances since 1991 when the indicator rose above 1.0.
On historical outcomes, Ferrario observed that equities have tended to post positive returns over the 12 months following a move of the RAI above 1.0, although the pace of gains usually decelerates after roughly six months. Despite the strong reading, Goldman cautioned that a high RAI by itself is not a reason to adopt a bearish stance - performance will continue to hinge on the broader macro backdrop.
The bank explained that equity returns generally remain positive so long as the RAI stays elevated, and that downside risks become more material only if the indicator falls below 0. Looking ahead to 2026, Goldman Sachs said it remains "modestly pro-risk," maintaining an overweight position in equities while implementing selective hedges to address both downside and upside growth risks.
Key takeaways
- The RAI stands at 1.09 - the highest since 2021 and in the 98th percentile since 1991.
- 17 of 27 RAI inputs show strong bullish z-scores, led by Small vs. Large cap, EM vs. DM equity, Bonos spreads, and AUD/JPY.
- Gold is the main outlier; excluding it would raise the RAI to nearly 1.2.
Sectors and markets impacted
- Equities - broad risk-on positioning affects small caps, developed vs. emerging market flows, and overall equity allocations.
- Fixed income - Bonos spreads are highlighted as a significant input, influencing credit and sovereign bond strategies.
- Currencies and commodities - AUD/JPY and gold movements are notable influences on risk positioning.
Risks and uncertainties
- Macro and policy uncertainty - elevated RAI readings persist despite policy and geopolitical uncertainty, which could change the outlook if conditions shift.
- Concentration risk from outliers - gold's divergence is significant enough that excluding it materially raises the RAI, indicating uneven inputs.
- Reversion risk - historical patterns show equity gains often slow after about six months following an RAI move above 1.0, and downside risk rises if the indicator falls below zero.