US stocks have repeatedly reached new highs, Bitcoin prices have soared, and investors are abandoning risk insurance against falling portfolios. There is evidence that the US economy is moving towards a so-called “soft landing,” which has stimulated market participants' risk appetite.

This is the so-called “Goldilocks” (Goldilocks) deal, betting that the Federal Reserve can curb inflation while preventing the economy from falling too fast. Although people still had doubts about this result just last month, a series of recent economic data reassured investors, including that the US Consumer Price Index (CPI) for April, which was released on Wednesday, slowed more than expected.

As can be seen from all types of assets, investors have rekindled interest in risk. The S&P 500 hit a record high on Wednesday and has risen 11% so far this year, rebounding from last month's decline. The Nasdaq Composite Index and the Dow Jones Industrial Average also hit new highs.

Assets such as bitcoin and meme stocks have also surged, and these assets are often viewed as a barometer of risk appetite, although their link to economic fundamentals is often questioned.

Meanwhile, a survey of fund managers conducted by BofA Global Research (BofA Global Research) reflects growing confidence among participants: the company's broadest investor sentiment indicators based on cash levels, stock allocations, and economic growth expectations are at their most optimistic level since November 2021.

Garrett DeSimone (Garrett DeSimone), head of quantification at Option Metrics, said: “Investors' appetite for risky assets appears to be rising.”

The following chart will show how the recent optimism among investors is affecting the market as a whole:

The S&P 500 index fell 4.2% in April due to concerns about whether the Federal Reserve could cut interest rates in the face of stubborn inflation, and investors now seem to be rushing to push up the stock market.

Many investors choose to do this and pay little attention to hedging downside risks. The Cboe Volatility Index, which measures market volatility protection needs, closed at a four-month low on Wednesday. The lesser-known VVIX Index is an indicator that measures the extent to which investors anticipate the VIX trend. The index has also declined and is currently close to its lowest level in about ten years.

Although few people choose options to hedge against falling markets, bullish contracts that can benefit from further increases in the stock market are in high demand. According to data from options analysis company Trade Alert, the average daily trading volume of call options within a month was 1.2 times the average daily trading volume of put options, which is the most optimistic level for this indicator in about a month.

Some market participants also pointed out that the rebound in meme stocks was a sign of investors' strong risk appetite. Last week, Keith Gill's account posted a series of posts on the X platform, once again triggering a meme stock frenzy. The stock price of GME.US (GME.US) soared by 140%, and the stock prices of various companies such as AMC Cinemas (AMC.US) and headphone manufacturer KOSS.US (KOSS.US) also skyrocketed. In the past few years, like Game Station, many companies' stocks have been seriously shorted, and fundamentals have declined.

Furthermore, weakening US economic data may provide room for the Federal Reserve to cut interest rates later this year. This hope has also put pressure on the dollar in recent trading days. The US dollar is a popular safe-haven tool in uncertain times. Since hitting a 17-month high in mid-April, the US dollar exchange rate against a basket of currencies has fallen 2%.

This helps to boost some emerging market currencies, which are sometimes considered riskier than currencies linked to developed markets. The Polish zloty rose 3.7% cumulatively this month, while the South African rand and the Colombian peso rose 2.8% and 2.7% respectively.

Expectations of volatility in the bond market have also declined in recent trading days. US Treasury yields (contrary to the trend in bond prices) fell to a low of more than five weeks on Wednesday.

Bitcoin is generally seen as an important barometer of risk sentiment. It hit a three-week high of $66,261 on Tuesday and is nearing the record high of $73,803 it hit in March.