Investor Risk Appetite Hits Five-Year High as Small Caps Outperform
Goldman Sachs' risk appetite indicator surged to 1.09 last week, marking the highest level since 2021 and placing current investor behavior in the 98th percentile historically. This rare bullish signal coincides with a dramatic small-cap rally, with the Russell 2000 posting its best January performance since 2021—outpacing the S&P 500 by 830 basis points in just 15 sessions.
Analysts project 30-35% earnings growth for small caps versus 22% for mega-cap tech stocks, fueling the rotation. 'Such elevated risk appetite can be sustained by supportive macro conditions,' Goldman strategists noted, dismissing concerns about overheating as the bank's composite index shows broad-based risk-seeking across asset classes.