Tech Stocks Drive Rapid Rebound in Risk Appetite; Goldman Sachs Maintains Moderate Risk Appetite

Overview

This report analyzes the rapid rebound in global market risk appetite in May 2026, identifying tech stocks, particularly AI-related investments, as the primary driver. Goldman Sachs maintains a moderate risk appetite stance over a 12-month horizon but adopts a neutral short-term tactical allocation, advising investors to increase defensive positioning while maintaining tech exposure.

Core views

Rapid Rebound in Risk Appetite: The Goldman Sachs Risk Appetite Indicator (RAI) rebounded from a low of -0.17 in March to above 1 within 43 days, marking one of the fastest recoveries from negative territory to above 1 since 2000. This was primarily driven by a strong equity rebound, with the Nasdaq 100 Index rising approximately 27% from its lows. Tech Stocks Lead the Rally: Stocks related to AI investments have led the gains. Currently, AI-related investment is estimated to account for about 1.1% of US GDP, supporting future growth expectations, particularly in the semiconductor sector. Defensive styles, such as low-volatility stocks, have significantly underperformed momentum stocks and the Russell 2000 Index. Asset Allocation Recommendations: Although the baseline outlook remains constructive, the distribution of outcomes is becoming increasingly asymmetric, with heightened tail risks on both ends. Goldman Sachs recommends a tactically neutral allocation (overweight cash, neutral equities/bonds/commodities, underweight credit for 3 months), while maintaining a moderate risk appetite over 12 months (overweight equities, neutral cash/bonds/commodities, underweight credit). Inflation and Policy Outlook: Energy cost pass-through and the impact of the Iran war are expected to keep PCE inflation near 3% year-over-year. Economists have delayed their forecasts for the Fed's last two rate cuts by one quarter to December 2026 and March 2027.

Analysis framework

Goldman Sachs employs a multi-dimensional analysis approach: First, it quantifies shifts in market sentiment using the Risk Appetite Indicator (RAI), which aggregates multiple market signals. Second, it analyzes cross-asset performance, comparing relative performance across equities, bonds, commodities, and other asset classes. Third, it applies momentum analysis to assess the strength, speed, and breadth of the equity rebound. Finally, it integrates macroeconomic data (such as inflation and employment) and policy expectations (Fed interest rate decisions) for a comprehensive judgment. The report pays particular attention to the potential for style rotation, showing through correlation analysis that the correlation between low-volatility stocks and momentum/small-cap stocks has declined significantly.

Methodology notes

• Event-Driven & Behavioral FinanceExpectation Gaps / Expectation Management

  Risk Appetite Indicator (RAI)

  Quantifies changes in market sentiment to measure investor risk appetite; a rapid rebound of the RAI from negative to positive values indicates significant improvement in market sentiment, aiding in the identification of market turning points.

• Quantitative / Factor / Portfolio TheoryBeta/alpha analysis

  Momentum Factor Analysis

  Analyzes the strength, speed, and breadth of the equity rebound; the 27% rebound in the Nasdaq 100 Index demonstrates strong momentum effects, helping to identify the dominant market style.

• Industry / Sector Analysis FrameworkSupply and Demand Framework

  Impact of AI Investment on Semiconductor Demand

  AI-related investment accounts for 1.1% of US GDP; analyzing its demand-pull effect on sectors such as semiconductors helps understand the logic behind the outperformance of tech stocks.

• Cycle & Prosperity FrameworkProsperity Turning Point Analysis

  Identification of Risk Appetite Turning Points

  Uses the shift of the RAI indicator from negative to positive to judge market sentiment turning points; the rapid 43-day rebound indicates a significant improvement in prosperity, assisting in timing decisions.

• Valuation methodsPE/PEG valuation

  Cross-Asset Valuation Comparison

  Compares valuation levels across different assets such as equities and bonds to help assess relative attractiveness and support asset allocation recommendations.

• Quantitative / Factor / Portfolio TheoryStyle factor analysis

  Style Rotation Analysis

  Analyzes performance differences among style factors such as low-volatility, momentum, and value; the declining correlation between low-volatility stocks and momentum stocks suggests a potential rotation.

• Macroeconomic frameworkThree-Factor Decomposition of Interest Rates

  Inflation and Interest Rate Expectation Analysis

  Decomposes inflation expectations, real rates, and risk premiums; PCE remaining near 3% affects the Fed's policy path, thereby influencing asset allocation.

• Event-Driven & Behavioral Finance

  Tail Risk Distribution Analysis

  Assesses the asymmetry of outcome distributions; increased tail risks on both ends support strategies for diversification and downside protection.

Key data

• Risk Appetite Indicator (RAI)Rebounded from -0.17 to above 1Completed within 43 days; one of the fastest rebounds since 2000
• Nasdaq 100 IndexRebounded 27% from lowsIndicates strong momentum in tech stocks
• S&P 500 EPS GrowthUp 17% year-over-yearStrong performance during Q1 earnings season
• AI-Related InvestmentApproximately 1.1% of US GDPSupports future growth expectations
• PCE Inflation ExpectationRemains near 3%Impacts the Fed's policy path
• Fed Rate Cut ExpectationDelayed to December 2026 and March 2027Delayed by one quarter compared to previous forecasts

Impact & implications

For investors, the current market environment supports maintaining exposure to tech stocks while increasing defensive allocations. High style dispersion suggests the potential for significant style rotation, and the declining correlation between low-volatility stocks and momentum stocks offers diversification opportunities. Using tools such as put option spreads to protect tech stock gains has become an important strategy. For sectors like semiconductors, AI investment continues to provide growth momentum, but the impact of inflation and policy changes on valuations requires close monitoring.

Risks

• Continued tensions in the Middle East
• Inflation data exceeding expectations (US CPI release on May 12)
• Outcome of the meeting between Trump and Xi Jinping
• Senate vote on Kevin Warsh's nomination for Fed Chair
• Impact of energy cost pass-through
• Risk that AI demand effects are overestimated

What to watch

• US CPI data on May 12 (Goldman Sachs expects core CPI MoM +0.31% vs. consensus 0.3%)
• Progress in the meeting between Trump and Xi Jinping
• Result of the Senate vote on Kevin Warsh's nomination for Fed Chair
• Changes in correlation between low-volatility stocks and momentum stocks
• Actual implementation status of AI-related investments