Goldman Sachs: The "three major long-term positives" of the US stock market are all collapsing, and Iran is exacerbating the trend.

During the U.S trading session on March 4th, there was a severe volatility in multiple assets. Chris Hussey from Goldman Sachs trading department stated in the client briefing of the day that the market's reliance on the "three major long-term positives" over the past year is now simultaneously being shaken, with the escalation of the conflict in Iran magnifying this change. The framework that supported the performance of the U.S. stock market, once stable like a "three-legged stool," was based on three factors: the long-term tailwind from the AI revolution, the continuation of the post-pandemic "echo prosperity" cycle momentum, and the potential for a more "market-friendly" monetary policy expectation as the Federal Reserve heads towards leadership change in the spring of this year. However, Hussey emphasized that this "three-legged stool" now has "all three legs hit by uncertainty simultaneously." As AI shifts from "revolution" to "disruption" and is compounded by the energy shock brought by Iran, the market can no longer be explained in terms of a single theme of rise and fall, and risk preferences are also more easily disrupted by sudden information. The first crack to appear was in the AI sector. As early as the end of last year, the market's focus had shifted from the "AI revolution" to "AI disruption." This underlying trend was particularly evident in the stock market performance in January and February, with the software sector suffering significant valuation pressure as a result. With the escalation of the conflict in Iran, the other two legs supporting the market - cyclical momentum and the Fed's interest rate cut expectations - were also fundamentally shaken. Signs are already evident: the S&P 500 opened below a recent clear range, with the 6800 level turning from support to resistance, causing the market to quickly switch from a "buying on dips" mode to a "risk control first" trading mode. The sudden escalation of the situation in Iran has become a key catalyst for disrupting the market balance. The Middle East conflict has caused a sharp fluctuation in oil and natural gas prices, directly impacting the global supply chain and triggering a cross-asset sell-off in the financial markets, leading to a simultaneous decline in stocks, bonds, gold, and cryptocurrencies. The rapid rise in energy prices has amplified the risk of an inflation rebound and poses a direct threat to economic growth. This unexpected variable has significantly cooled off market optimism about the Fed starting an interest rate cut cycle, causing long-term bond yields to rise, and forcing investors to reprice the continuation of the era of tightening. In response to this complex market turmoil, Goldman Sachs analyst Chris Hussey clearly pointed out that in the background of the waning AI dividend, weakening cyclical momentum, and uncertain monetary policy, navigating investors will become exceptionally difficult in the current "red ocean." The most direct transmission path of geopolitical conflicts to the market is through energy prices, which is precisely the blade that erodes the fundamental macroeconomic conditions of the U.S. Because of the surge in oil prices, the risk of inflation rising could suppress global economic growth, thereby weakening the cyclical positives that were originally used to counteract the headwinds of "AI disruption." Goldman Sachs analyst Jessica Rindels provided a quantitative impact assessment. She pointed out that Brent crude oil contracts have risen by about $10 per barrel since last Friday's close. From a macro perspective, for every $10 increase in oil prices, it is expected to weaken U.S. GDP growth by about 10 basis points. In the current market environment, this 10 basis point economic slowdown has a magnified destructiveness. With the current price-to-earnings ratio (P/E) of the S&P 500 index at a high of 22 times, valuations are at historical highs. Under such expensive pricing, any uncertainty about the economic growth and profit path of CKH HOLDINGS companies will trigger a disproportionately sharp pullback in the stock market. More concerning for investors than economic slowdown is the reshaping of the inflation path by energy prices. This directly determines the next steps for the Federal Reserve. Jessica Rindels predicts that if oil prices continue to rise by 10%, core CPI will increase by 4 basis points, and overall CPI will increase by 28 basis points. If the upward trend in oil prices proves to be persistent, the year-on-year growth rate of overall CPI in the U.S. in May will rise to 3.0%, remaining higher than Goldman Sachs' previous benchmark forecast for the year. The logic is very clear: in a world where inflation returns to 3%, the theoretical basis for the Federal Reserve to cut interest rates will no longer exist. This is in stark contrast to the market's previous expectations of inflation falling back to 2.0% by the end of the year and accompanying continuous interest rate cuts. Volatility will continue to spread across assets The substantial impact of the Middle East situation on global energy supply is still unfolding. Goldman Sachs analyst Sam Dart has significantly raised expectations for European natural gas prices in the first half of 2026 by about 50%, reflecting a 20% reduction in liquefied natural gas (LNG) supply due to disruptions in production and transport in the Middle East. The pricing in the energy market strictly follows the laws of supply and demand. Chris Hussey and the Goldman Sachs team conclude that before a clear picture of energy supply disruptions emerges, the volatile fluctuations in the energy market will become the norm. For investors, the most realistic risk is that this high volatility will not be limited to commodities but will continue to spill over and spread widely to other financial markets such as stocks and bonds. This article is reprinted from: Wall Street News; GMTEight Editor: Chen Xiaoyi.