With a U.S.-Iran agreement yet to be finalized, Monday's risk sentiment remains untested. Earlier, ceasefire news prompted a rapid decline in geopolitical risk premiums, leading U.S. stock investors to flock back to pre-conflict mainstream themes like AI. Data shows the S&P 500 and Nasdaq 100 have risen for seven consecutive sessions, marking the longest winning streak since September 2025; Europe's Stoxx 600 recorded its largest single-day gain since March 2022 on Wednesday.
Louis Miller, Head of Global Equity Custom Basket Business at Goldman Sachs, noted in a recent report that gold mining stocks have notably failed to keep pace with this rebound, with their share prices diverging from strong earnings revisions. The report maintains a year-end 2026 gold price forecast of $5,400 per ounce, citing that miners benefit from positive operating leverage and have seen significant improvement in free cash flow.
Meanwhile, AI infrastructure-related trades have generally risen by approximately 17% to 18%, and a high-beta momentum portfolio recorded its best two-day performance since the pandemic. Momentum is not yet overbought, and if the fundamental backdrop remains solid during earnings season, the current rally has room to extend. AI infrastructure has become a core catalyst for earnings season, with the Information Technology sector's earnings growth expectation as high as 44%.
Regarding hedging strategies, it is advised to "stay close to the source of risk" by directly purchasing downside protection. Traditional hedging tools have become less effective due to rising stock-bond correlation and the diminished safe-haven value of the Japanese Yen, making VIX put options a low-cost alternative.
Gold miners show a significant dislocation, with central bank demand providing support. Gold miners are listed as one of the most attractive dislocation opportunities currently. Despite recent rebounds, the gold miners basket remains about 16.9% below its pre-conflict highs, a clear divergence from persistently strong earnings per share revision data.
Commodity analysts maintain the year-end 2026 gold price forecast of $5,400 per ounce, citing reasons including ongoing central bank diversification, normalization of speculative positioning, and expectations for a 50-basis-point Fed rate cut. The report notes that gold miners benefit from positive operating leverage, have significantly improved free cash flow, and possess potential for increased dividend yields.
Furthermore, recent gold price volatility partially stems from crowded positioning due to a surge in option demand earlier in the year. If the de-risking process is largely complete, long-term upside risks would be significantly skewed higher in an escalation scenario, especially if concerns about Western fiscal sustainability intensify.
AI trades regain dominance. The focus of the current U.S. stock market has clearly shifted back to pre-conflict themes. The relative strength of software and semiconductors fell by 23.7% this week, ranking at the bottom; meanwhile, AI infrastructure-related trades rebounded across the board, with the Asia AI computing basket up 17.9%, the U.S. optical networking basket up 17.4%, and the global memory basket up 17.5%.
The high-beta momentum portfolio recorded its best two-day gain since the COVID-19 pandemic this week, primarily due to the rapid clearing of geopolitical risk premiums following the ceasefire announcement. The report indicates the momentum portfolio's correlation with AI trades has risen to high levels, while its correlation with software/semiconductors has decreased to low levels, corroborated by the TMT momentum portfolio's record-best five-day performance.
Momentum is not yet in overbought territory. If fundamentals remain robust during earnings season, the current breakout has room to continue. For contrarian investors who believe the software sell-off is overdone, Goldman Sachs suggests positioning via call spread options on a software recovery basket.
Earnings season approaches: AI drives profit growth, cyclical stocks still have upside. Approximately 40% of the S&P 500's baseline forecast for 12% EPS growth in 2026 is attributed to AI infrastructure investment. Market consensus expects 44% EPS growth for the Information Technology sector in the first quarter, which would contribute 87% of the index's overall earnings growth for the quarter. The expected bar for AI capital expenditure-related trades is already quite high.
The most favored AI infrastructure trades include the memory basket and the AI data center basket, the latter recently incorporating emerging sub-categories like liquid cooling, optical networking, and inference beneficiaries. Price action for both baskets has diverged from EPS revision data, suggesting the Q1 earnings season could act as a catalyst for prices to revert to fundamentals.
For companies outside the tech sector, market focus will center on how businesses navigate energy price shocks and supply chain disruptions. If Q1 earnings and forward guidance support the baseline scenario of 12% earnings growth, the market will further digest growth versus recession risks, potentially pushing cyclical stocks higher relative to defensive stocks—this pair currently remains about 6.3% below its high for the year.
Emerging markets repricing, Chinese A-shares possess structural advantages. Although the two-week ceasefire triggered a brief rebound in Asia-Pacific markets, subsequent choppy price action indicates investor confidence remains fragile. Since the Middle East conflict erupted, foreign investors have significantly reduced exposure, with Korea seeing net outflows of $24 billion, leading the withdrawal list.
Given currently light positioning and intact regional fundamentals, investors are expected to gradually shift from a blanket "risk-off" mode towards strategic allocation in market segments with structural insulation from energy shocks.
China's economy demonstrates better resilience to oil price shocks compared to global peers, benefiting from its energy diversification strategy and high penetration of renewable energy. Factors like undervaluation further strengthen the investment case for Chinese A-shares. Goldman Sachs remains positive on the China HALO trade and maintains a bullish stance on the Asia AI basic computing power theme, which benefits from the "AI super-cycle" evidenced by Samsung's record Q1 performance.
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