Stock investors are bracing for a spike in market volatility, and upcoming events such as Nvidia Corp.’s earnings report can exacerbate any moves, according to Goldman Sachs Group Inc. strategists.

The bank’s measure of risk appetite hit the highest since 2021 last week, driven by optimism around economic growth and monetary policy, but momentum has slowed, the team led by Andrea Ferrario wrote in a note dated May 20.

The strategists point to CBOE Volatility Index options data that signal higher demand for hedges against sudden market declines, at a time when the gauge has dropped to historically low levels. 

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“This suggests markets are pricing less risk of a sustained drawdown from here, but are worried about temporary spikes in volatility,” Ferrario said. “With high market concentration, idiosyncratic events can also matter,” he added, pointing to Nvidia’s earnings report due Wednesday as an example.

U.S. stocks are again scaling record highs this month, after the rally briefly faltered in April, as investors bet economic data would allow the U.S. Federal Reserve to cut interest rates later this year. With the corporate earnings season coming in better than expected, market participants have pointed to few risks to threaten equity gains.

Data from Citigroup Inc. showed a rise in bullish positioning levels in S&P 500 and Nasdaq 100 contracts last week. The S&P 500 is now “almost exclusively one-sided,” but “profit levels are only beginning to develop, which limits positioning risks,” strategist Chris Montagu wrote in a note.

Wall Street strategists are also getting more optimistic, with Morgan Stanley’s Michael Wilson — a prominent bear on U.S. stocks — capitulating his pessimistic view this week. JPMorgan Chase & Co.’s Marko Kolanovic is now among the lone big bearish voices on equities.