Goldman Sachs warns that investors’ once-strong risk appetite is beginning to wane, increasing the risk of a stock market downturn. The bank’s strategists said the risk appetite index had fallen to a more neutral level of around 0.2, marking a clear deterioration from the “Goldilocks” conditions that supported the market throughout the summer. Economists at Goldman expect U.S. growth to accelerate again in 2026, but the Wall Street investment bank said the odds of a sharp market decline outweigh the odds of a big rally. .SPX YTD Mountain S&P 500 Year-to-date “The increase in drawdown risk is driven by higher equity valuations and the weaker U.S. business cycle,” the strategists wrote. “Our equity asymmetry framework suggests that declines are more likely than massive gains.” The S&P 500 has rebounded aggressively from its April lows to new consecutive highs and is on track for an additional nearly 16% gain in 2025. On Friday, weak inflation data for September boosted investor optimism that the Federal Reserve could continue to cut interest rates, increasing the present value of future profits and potentially boosting corporate profits. Goldman recommends adding a downside hedge such as S&P 500 options that overlay the drawdown probability at current levels. Still, the bank said it remains “moderately pro-risk” in its overall asset allocation. (Learn the best strategies for 2026 from inside the NYSE with Josh Brown and others on CNBC PRO Live. Tickets and information here.)
