Amid ongoing discussions about US volatility, many investors have diversified away from dollar assets this year, resulting in inflows into other developed markets like Europe.
Despite this, a recent Goldman Sachs survey found that many investors remain optimistic about US stocks.
Of the 800 institutional investors surveyed, 51 per cent were bullish on the S&P 500 index, while only 32 per cent were bearish.
According to the investment bank, investor risk sentiment has returned to the elevated levels last observed in January 2025, when a key theme across various markets was US exceptionalism.
Oscar Ostlund, global head of content strategy, market analytics and data science for Marquee in Goldman Sachs Global Banking and Markets, said anticipated Fed rate cuts, AI optimism and the perception of easing geopolitical risks have combined to improve the outlook for US equities.
He explained that interest rates coming down sooner than previously anticipated would likely boost US stock valuations.
Meanwhile, he said that growing optimism surrounding AI is also beneficial for US assets, as the country houses some of the world’s leading technology companies.
The group of American mega-cap tech stocks known as the Magnificent Seven were particularly popular among the investors surveyed, with 66 per cent saying they planned to hold their investments or build up their positions further.
This is despite a decline experienced by the group earlier this year following tariff announcements and reports that Chinese tech companies could develop large language models more cost-effectively than their US competitors. Adding to this, last week’s mixed results from Alphabet and Tesla again sparked concerns that the group’s prevailing era was over.
However, Ostlund said the survey suggested otherwise: “We’ve recovered, and the view on the Magnificent Seven is basically as strong as it was in 2024.”
While trade and geopolitical risks remain significant for most investors, he said their perceived importance has declined in recent months as investors adjust to higher tariff expectations.
“Investors seem to be very cool about tariffs. A 10 to 15 per cent effective tariff rate is seen as the new normal,” he said.
This trend may already be evident ahead of the 1 August tariff deadline, following Europe’s 15 per cent trade deal with the US announced earlier today and Japan’s last week.
Brian Garrett, who oversees equity execution for the cross-asset sales desk at Goldman Sachs, added that global trade’s resilience despite tariffs suggests investors may have overreacted to concerns about trade and economic growth.
“There was this fear that the US was removing itself from global trade at the beginning of April, and I think that fear has largely been quashed,” he said.
Conversely, the survey revealed a bearish outlook on the US dollar, which is currently declining.
“Dollar bears now outnumber bulls at a ratio of greater than 7:1,” Ostlund said.
A divergence in sentiment between US equities and the US dollar has historically been rare – this is the highest level of one-sidedness on the dollar observed in the survey’s nearly 10-year history.
Goldman Sachs said the greenback’s decline has reflected concerns about the country’s fiscal outlook, with the dollar having weakened 11 per cent against the euro and 6.4 per cent against the Japanese yen as of 17 July this year.
Garrett said this decoupling might suggest that investors have a disconnect between the two areas.
“When you look at the returns of the equity market, the biggest driver is economic growth. And if the US economy is growing at a fast pace, you’d think the dollar would get stronger,” he said.
Overall, the survey revealed an unusual level of consensus among respondents, which, according to Ostlund, can often signal a stretched market.
He said while a strong consensus doesn’t automatically trigger a market reversal in itself, it does create an environment highly susceptible to rapid shifts.
The investment bank said the current consensus presents a hedging opportunity for portfolios, as there is less demand for trades that go against this consensus.
“Trying to find cheap ways to defend against things that are so deeply entrenched in consensus is a valuable trade,” Garrett said.
