Goldman Flags 1.2 Risk Appetite Peak, Keeps Overweight, Buy Dips
GS•Goldman Sachs analysts forecast equity returns will moderate over the next 12 months after a sharp rally, noting its Risk Appetite Indicator has climbed to 1.2—the highest since 2021—and maintain an overweight stance with a buy-the-dip recommendation. They cite elevated bond yields, higher energy prices and Middle East tensions as key headwinds and advise put spread collars, factor diversification and long-dated call options for risk mitigation.
1. Market Outlook and Positioning
Goldman Sachs projects that equity returns will slow over the next 12 months following a concentrated rally driven by technology earnings and AI capital expenditure growth. The firm remains overweight equities, advising clients to purchase any market pullbacks in the coming months to capitalize on its positive macro baseline.
2. Risk Appetite Indicator and Headwinds
The bank’s Risk Appetite Indicator has risen above 1.2, its highest level since 2021, signaling elevated investor sentiment but also increased risk of corrections. Ongoing pressures include higher bond yields, surging energy prices and potential geopolitical flare-ups in the Middle East that could disrupt oil supply if the Strait of Hormuz remains closed.
3. Recommended Risk Strategies
To manage downside risk, Goldman Sachs advocates selective strategies such as put spread collars and diversified factor exposure, while expressing a preference for long-dated call options to maintain upside participation. These tactics are intended to balance protection against sudden corrections with the firm’s bullish 12-month equity outlook.
