What does negative risk appetite mean?

  • Goldman Sachs’ cross-asset risk appetite indicator fell to -0.5, its lowest level since April 2025. Compared with late summer, cooler sentiment has eased the constraints on upside for risk assets.
  • Historically, readings below -1, particularly those approaching -2, have been useful contrarian signals; the current level has not fallen that far.
  • Credit-related components were the main driver of the indicator’s recent decline and weighed on Goldman’s “global growth” factor; lower bond yields supported its “monetary policy” factor.

Why have technology stocks affected more assets?

  • The correlation between Goldman’s cross-asset risk appetite indicator and the relative performance of the Nasdaq 100 versus the equal-weighted S&P 500 index has risen in recent years, approaching 1 in recent weeks. This indicates a closer link between the relative performance of technology stocks and cross-asset sentiment.
  • Over the past three weeks, differences in assets’ sensitivity to semiconductor stocks have explained their performance differences better than their sensitivity to oil prices. Last week, excess returns on credit assets fell sharply again, while 10-year government bonds in four major economies rose, providing some cushion against the AI-related sell-off.
  • Eurozone-related assets also generally performed below levels implied by the global growth and monetary policy factors, while the spread between French and German government bonds widened beyond what fundamentals could explain. Within equities, defensive, quality and value styles outperformed factor-implied returns, cushioning the drawdown in technology-led momentum strategies.

Why might near-term volatility persist?

  • The options market is pricing greater uncertainty over the next two weeks than over the following month, reflecting a concentration of important near-term events. Equity markets such as the Nasdaq 100 are pricing greater volatility this week, when Microsoft, Alphabet and Amazon are due to report earnings.
  • Long-dated US Treasuries and high-yield credit are pricing greater volatility around next week’s US midterm elections. Investors will also watch the Federal Reserve, the Bank of Japan and the European Central Bank this week; Goldman economists expect the Fed to hold rates steady at this meeting and raise them in December.
  • Goldman believes AI concerns, Middle East tensions and the US midterm elections could all prolong recent volatility.

How is Goldman positioned, and what support does it see?

  • Goldman maintains a moderately pro-risk allocation: it is overweight equities and underweight credit over both the next 3 months and the next 12 months, while overweight cash over the next 3 months and overweight bonds over the next 12 months.
  • The bank believes earnings support, lighter positioning and lower valuations could help equities perform before year-end. As a valuation reference, the report lists the S&P 500’s forward price-to-earnings ratio for the next 12 months at 18.6 times, below the 19.2-times average over the past 10 years.
  • By region, Goldman is overweight US, Japanese and Asia-Pacific ex-Japan equities and underweight European equities over both the next 3 months and the next 12 months. Its 12-month S&P 500 target is 8700 points, corresponding to an approximately 15.3% total return from the table’s starting level of 7624 points.