Shortages and Beyond

Following an Iran ceasefire, markets have rallied on AI optimism and compressed risk premia, yet Goldman Sachs warns that re-escalation risks and valuation overhangs in AI necessitate robust tail hedging.

Key Takeaways

• 1.The recent relief rally following the Iran ceasefire has compressed risk premia, but a re-escalation in the Middle East remains a major underpriced tail risk.
• 2.Physical shortages in the AI supply chain and commodity markets are primary drivers of current capital flows and asset outperformance.
• 3.US growth pricing has likely overshot realistic levels, standing at 2.5%, which is consistent with the market looking past near-term weakness.

Table of Contents

• 1. The risks of relief.
• 2. Iran re-escalation still the main risk.
• 3. Macro optimism already well priced.
• 4. Back to AI amid booming capex.
• 5. The value challenge.
• 6. Higher volatility, but not yet broad-based.
• 7. Rates running out of time.
• 8. Dollar stability masks deeper FX shifts.
• 9. EM: Carry on waiting.
• 10. Shortages and beyond.

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