Recovery in U.S. equity risk appetite drives a rebound in sentiment and positioning

Overview

This report tracks global cross-asset fund flows, investor sentiment, and changes in futures and options positioning, with the core conclusion that risk appetite in the U.S. equity market has improved markedly. As markets are no longer intensely pricing aggressive tail risks, equity volatility has declined, cross-asset skew has fallen, and demand for call options has risen, while active managers, hedge funds, CTAs, risk parity, and retail flows have jointly driven the rebound in risk assets.

Core views

The report argues that U.S. equities have been the most prominent part of this rebound. Bullish skew in U.S. equity indices rose rapidly after ceasefire negotiations, while S&P 500 put-call ratios fell to historical lows, indicating stronger investor demand for upside participation. In terms of regional flows, U.S. investors increased allocations to both domestic and overseas equities, while foreign and domestic investors have also mainly added risk exposure through U.S. equities since the first quarter. By contrast, re-risking outside equities has been more moderate: government bonds and investment-grade bonds absorbed substantial inflows earlier this year, high-yield bonds have still seen recent outflows, and safe-haven positions in gold ETFs and JPY have declined.

Analysis framework

The report uses a cross-asset dashboard approach, combining sentiment surveys, options trading, CFTC futures positioning, EPFR fund flows, risk parity allocation, CTA beta, hedge fund leverage, and active manager equity exposure to observe evidence of a switch in risk appetite from risk-off to risk-on.

Methodology notes

• Sentiment and positioning monitoringGoldman Sachs positioning and sentiment indicator

  Composite multi-indicator percentile

  This indicator normalizes information from active managers, hedge funds, options, risk appetite, fund flows, and safe-haven positioning into percentiles to assess whether the market is currently in a more risk-off or risk-on state.

• Risk appetiteGS Risk Appetite Indicator (RAI)

  Risk appetite reading

  RAI is used to measure overall market risk appetite. The report says it has returned to its pre-war level of 0.79, supporting the view of a rebound in risk assets.

• Fund flowsEPFR Fund Flows Data

  Mutual fund and ETF flows

  EPFR covers more than $25 trillion in global mutual fund and ETF assets and tracks weekly flows, allowing comparison of flows into equities, bonds, money market funds, and regional assets.

• Futures positioningCFTC Future data

  Non-commercial net futures positioning

  The CFTC publishes weekly futures market positioning data, which the report uses to observe changes in net long and short positions across equities, bonds, FX, gold, and commodities.

• Options positioningCBOE Put/Call Ratio and equity skew

  Put-call trading ratio and skew

  A lower put-call ratio and higher call skew usually indicate stronger investor demand for upside risk; the report says related S&P 500 indicators already show improved risk appetite.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• U.S. equities

  The core beneficiary asset in this round of risk-on rebound

  Strengths

  Supported by retail flows, renewed leverage from active managers and hedge funds, and activity from CTAs and risk parity; demand for call options has also strengthened.

  Weaknesses

  The report notes that investors have selectively reduced exposure to cyclical stocks and leveraged funds in recent weeks, indicating that the internal structure is not expanding across the board.

  Comparison

  Compared with markets outside the U.S., U.S. equities have received stronger support from both domestic and foreign fund flows.

  Risks

  If tail risks are repriced or crowded options positioning reverses, the equity index rebound could come under pressure.

• High-yield bonds

  A credit asset showing weaker follow-through among risk assets

  Strengths

  Credit strategists' weekly sentiment indicator has improved versus several weeks ago.

  Weaknesses

  They have still seen more recent outflows and have not re-risked as clearly as U.S. equities.

  Comparison

  Government bonds and investment-grade bonds absorbed more inflows earlier this year, leaving high-yield bonds as relative laggards.

  Risks

  If economic or credit risks heat up again, high-yield bonds may continue to face redemption pressure.

• Gold

  A representative asset of cooling safe-haven positioning

  Strengths

  Gold futures net positioning in the CFTC table remains positive at about $78 billion.

  Weaknesses

  Gold ETFs have seen substantial outflows, signaling weaker demand for safe assets.

  Comparison

  In contrast to inflows into U.S. equities, gold more clearly reflects the fading of risk-off trades.

  Risks

  If geopolitical or growth risks rise again, safe-haven demand for gold could recover.

• JPY

  Cooling positioning in a safe-haven currency

  Strengths

  As a traditional safe-haven currency, it still has risk-event hedging characteristics.

  Weaknesses

  The report says JPY futures positioning has declined, and net JPY positioning in the CFTC table is negative.

  Comparison

  Like gold, JPY reflects a contraction in safe-haven positioning.

  Risks

  If risk-off returns, JPY shorts or underweights may face a covering squeeze.

• BCOM

  A representative index of rising commodity positioning

  Strengths

  Asset managers' exposure to BCOM futures has reached a record high.

  Weaknesses

  Elevated positioning may reduce room for further marginal increases.

  Comparison

  Compared with outflows from gold ETFs, broad commodity positioning is still rising.

  Risks

  If global growth expectations or commodity demand weaken, record-high positioning could amplify drawdowns.

Key data

• Sentiment and positioning indicator58th percentileThe report says the composite sentiment and positioning indicator has rebounded to the 58th percentile.
• GS Risk Appetite Indicator0.79It has returned to its pre-war level.
• U.S. domestic equity fund flowsAbout $100 billion year-to-dateAbout half of that flowed in during the most recent four weeks.
• S&P 500 futures net positioning$351 billion, about 51% of open interestFrom the CFTC cross-asset positioning table.
• U.S. equity futures net positioning$392 billion, about 46% of open interestFrom the CFTC cross-asset positioning table.
• Gold futures net positioning$78 billion, about 45% of open interestThe report also notes clear outflows from gold ETFs, indicating cooling safe-haven positioning.
• U.S. bond futures net positioning-$583 billionThe CFTC table shows U.S. bond-related positioning remains net short.

Impact & implications

For asset allocation, the report implies that the short-term market narrative has shifted from safe havens to a recovery in risk appetite, with U.S. equities and upside option demand benefiting most clearly; however, the weaker follow-through in credit and non-equity risk assets suggests the rebound is still concentrated in U.S. equities and some systematic strategy re-engagement. Gold ETF outflows, lower JPY positioning, and softer U.S. dollar risk reversals imply that safe-haven trades are fading. In commodities, asset managers' exposure to BCOM futures has reached a record high, indicating that commodity positioning has not fully cooled alongside safe-haven assets.

Risks

• The recovery in risk appetite is highly concentrated in U.S. equities; if fund flows or systematic strategies reverse, the rebound may lack broader asset support.
• Demand for call options and low put-call ratios may reflect short-term crowding; if tail risks are repriced, volatility could rise again.
• High-yield bonds are still seeing outflows, suggesting the credit market has not fully confirmed the risk-on signal.
• BCOM futures positioning is at a record high, creating crowding risk in commodity-related assets.

What to watch

• Whether the GS Risk Appetite Indicator continues to hold near pre-war levels or rises further.
• Whether U.S. equity index call skew, put-call ratios, and cross-asset skew continue to support improving risk appetite.
• Whether U.S. domestic and overseas equity fund flows continue the strong inflows seen over the past four weeks.
• Whether high-yield bond flows can turn from outflows to inflows, confirming that risk-on is spreading from equities to credit.
• Whether gold ETFs, JPY futures, and U.S. dollar risk reversals continue to signal fading safe-haven positioning.
• Whether record-high asset manager exposure to BCOM futures brings reversal risk in commodity positioning.