Goldman Sachs stated that although recent comprehensive rebounds in stock markets, emerging market assets, and artificial intelligence (AI)-themed stocks have driven market valuations to new highs in the current cycle, underlying risks have not been entirely resolved. A renewed escalation of the Middle East conflict or a prolonged closure of the Strait of Hormuz would remain the "most significant downside risk" for global financial markets. Concurrently, Goldman Sachs has revised its timeline for global interest rate cuts, suggesting that central banks in both developed and emerging markets may implement fewer rate cuts by the end of 2026, with the possibility of maintaining current rates unchanged. Analyst Dominic Wilson noted in a recent report that with the Iran ceasefire agreement taking effect, market risk premiums have narrowed rapidly, leading to a recovery in various asset prices. Simultaneously, physical shortages in commodity and AI supply chains continue to attract capital inflows, boosting market optimism. Indices heavily weighted towards AI, including those in South Korea, Taiwan, and the Nasdaq, have recovered to pre-conflict levels. Wilson indicated that following the rapid rebound, the distribution of market risks has become more balanced. However, he believes the market still underestimates deeper tail risks, particularly the potential for a renewed escalation in the Iranian situation. Goldman Sachs pointed out that if energy supply can gradually normalize, it would help alleviate pressures in the currently hawkishly priced oil and interest rate markets, potentially driving broader gains across more regions and sectors. Regarding the AI investment boom, Goldman Sachs noted that the proportion of technology-related capital expenditure to global GDP has now surpassed the peak levels seen during the late 1990s dot-com bubble, indicating that market valuation risks are gradually increasing. The firm further highlighted that the widening gap between winners and losers within the AI industry is keeping individual stock volatility high. However, this dynamic is simultaneously reducing overall market correlations to historically low levels, further suppressing volatility in benchmark indices.
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