Meanwhile, 51% of respondents were bullish on the S&P 500 index of large US stocks, compared with only 32% who were bearish.
There may be a disconnect between investor optimism for US stocks and the expectation that the dollar will decline, says Brian Garrett, who oversees equity execution for the cross-asset sales desk in Goldman Sachs Global Banking & Markets. “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 says.
Why are investors optimistic about US equities?
A number of factors have lifted the outlook for US equities, Ostlund says. Signs of a more dovish Federal Reserve have played a big role. Interest rates coming down sooner than previously expected would likely boost US stock valuations.
Growing optimism about artificial intelligence (AI) also helps US assets, because the country is home to some of the world’s biggest technology players. The group of large US tech companies known as the Magnificent 7 were particularly popular among investors surveyed in the latest QuickPoll: 66% said they plan to hold their Magnificent 7 investments or build up their positions further.
Magnificent 7 stocks dropped earlier this year amid tariff announcements and news that Chinese technology companies could build large language models more economically than their US counterparts. Now, though, “we’ve recovered, and the view on the Magnificent 7 is basically as strong as it was in 2024,” Ostlund says.
Another key driver is the perception that geopolitical risks are moderating, Garrett adds. Trade and geopolitics are still key factors for most investors, but focus on those risks has been gradually decreasing for the last few months as investors seem to factor a higher tariff rate into their expectations.
“Investors seem to be very cool about tariffs. A 10-15% effective tariff rate is seen as the new normal,” Ostlund says.
As global trade has remained resilient in the face of tariff disruptions, investors may also feel that the concerns about risks to worldwide trade and broader economic growth were overblown.
“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,” Garrett says.
Are US markets vulnerable to a reversal?
The July QuickPoll registered a higher degree of consensus than usual, with respondents broadly aligned on a range of questions. Bullishness on risky assets, the S&P 500, and gold all clearly exceeded the historical average, while investor expectations for oil and the dollar were more negative than the average month.
“A very one-sided position is a sign of a stretched market,” Ostlund says. “In itself, a very strong consensus is not a reason for the market to turn, but it makes for a market that’s susceptible to relatively sudden changes based on even minor catalysts.”
Investors have so far been able to move in lockstep, because “there hasn’t been a price challenge to any of those convictions,” Garrett says. “But I’ve seen markets where everybody’s facing the same way—it only takes one or two data points to get some thesis creep.”
How to protect a portfolio from market herding
When consensus is so high, it can be an opportunity to hedge portfolios because there’s less demand for trades which go against consensus. “Trying to find cheap ways to defend against things that are so deeply entrenched in consensus is a valuable trade,” he says. Garrett notes that a trade on the S&P and the euro both declining would fall into that category, for example, acting as an unwind of expectations for both US exceptionalism and dollar weakness.
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Source: goldmansachs.com
