Investors shift to riskier assets as market confidence soars

Investors are gravitating towards riskier assets as market fear dissipates. U.S. stocks are hitting record highs, bitcoin is soaring, and insurance against portfolio declines is being shunned due to optimistic economic data suggesting a “soft landing.”

Dubbed the “Goldilocks trade,” this trend reflects confidence that the Federal Reserve can manage inflation without stalling growth. Recent data, including a better-than-expected consumer price report, has reassured investors, spurring a renewed appetite for risk.

The S&P 500, Nasdaq, and Dow Jones are all reaching new heights. Bitcoin and meme stocks, often seen as indicators of risk tolerance, are also climbing. The S&P 500 has risen 11% year-to-date, rebounding from April’s decline.

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Investor confidence is evident across markets. A BofA Global Research survey shows investor sentiment at its highest since November 2021. Demand for market protection is low, with the Cboe Volatility Index at a four-month low and the VVIX near a decade low. Conversely, call options are in high demand, indicating bullish expectations.

Meme stocks like GameStop and AMC are surging again, driven by social media activity and robust risk appetite. Meanwhile, the dollar has weakened, boosting emerging market currencies such as the Polish zloty and South African rand. U.S. Treasury yields have also dipped, reflecting lower bond market volatility expectations.

Bitcoin, a key risk sentiment indicator, reached a three-week high of $66,261, approaching its March record of $73,803.