Premium3 Streaks Worth Flagging & 'Something For The Weekend' From Goldman Sachs Partner
This tape hasn’t become any easier to navigate over the past week, prompting the continuous use of ETFs to efficiently hedge and position accordingly.
As Goldman's Chris Lucas notes, the trading power that ETFs have demonstrated over the past month is nothing short of extraordinary, with March 2026 proving to be a record month of notional trading volumes (with two sessions remaining next week).
Amid all that, here are three 'streaks' worth paying attention to:
1) Energy has been one of the hardest markets to ignore since the Iran conflict, the price action in the space (specifically within energy equities) was spurred at the onset of the software/AI consternation earlier this year. XLE’s underlying index, IXE, is on track for its 14th consecutive week higher (+40% over the stretch), which would be a new record since the index’s inception. Flows have followed performance, with XLE attracting $5.5 billion worth of new money over the stretch, coupled with a +20% increase in shares outstanding.
Source: Bloomberg, Goldman Sachs
2) Mega-caps (NDX/QQQ) are in the midst of their worst 20-day move since April 2025, but what’s more surprising is the overhang of angst in the market. NDX is on track to trade lower for 5 straight weeks, which would be its longest streak since May 2022. While price action has been tricky, this leads into one final observation…
Source: Bloomberg, Goldman Sachs
3) Widening the aperture to capture the ETF broader ecosystem. While there are many cross currents in the chop, the propensity to invest broadly continues to churn. US-listed ETFs, which represent roughly $13.5 trillion in AUM, are slated to register a 47th consecutive month of inflows. Flows in March aren’t just in positive territory by a whisker… a mere $90 billion has been invested since the start of the month.
Source: Bloomberg, Goldman Sachs
With those 'exceptionals' in mind, Goldman Sachs Partner, Mark Wilson, lays out 10 points below, as we prepare for what will likely be another eventful weekend of headlines.
The first 3 points focus on the specifics of Iran & the Middle East, followed by 7 shorter points on the market – but the most important point to make up front is our thoughts are with those who are impacted, and whose family & friends are impacted, by the ongoing conflict
1) The prevailing media coverage & consensus narrative around the conflict seems to be both overly reductive in its interpretations, and acutely unhelpful when considering the market implications.
The persistent presentation of binary outcomes (“winning”/”losing”, ‘TACO’, the acceptance or denial of negotiations & direct mediated dialogue) is likely inconsistent with the realities of what’s actually happening & where this goes next. The framing of negotiations over the last 3 days probably best exemplifies this, but also most clearly illustrates the performative stage of proceedings that we’re entering as negotiations begin in earnest.
Of all recent ‘crises’ and major market events we’ve had to navigate, this one is proving most frustrating versus others to pragmatically analyse due to the unknowable dimension of an incredibly complex political situation, with a highly unconventional leader on one side and an unknown lead adversary on the other (now the Iranians have admitted to negotiations, are we any wiser who the US are in touch with ?).
What does at least seem clear from a markets impact perspective, is that the time scaled outcome is almost as important as the outcome; something that was re-confirmed last night as price response to Trump’s extension to April 6th under-scored the market’s sensitivity to a longer closure of Hormuz.
2) While other dimensions to this conflict are more important to the geo-political & socio-economic fallout, the status of traffic through the Straits of Hormuz is the central issue for economic & market outcomes.
Beyond the immediacy of traffic flow, 4 points seem worth making ::
1/ Did the US really go into this conflict without considering the Iranian response to SoH traffic ?! Again, I’d contend the consensus media narrative here isn’t useful or likely accurate; I’d also pose the question of why April 6th has been set as the new deadline; with the widely reported imminent arrival of USS Tripoli, followed by USS Boxer, a significant increase in proximate US forces capable of changing the military equation in the SoH is imminent / complete by April 6th, and hence the nature of negotiations may feel very different closer to that new deadline.
2/ In a state of depleted military capability, control of the Straits is Iran’s trump card. However, they’ve now played it – and I’m not sure its a threat that is repeatable (unless the world’s going to forget this escapade ever happened).
3/ The US has a logical argument around the policing of the Straits : the US are not selling anything that passes through it, and they’re not buying anything that passes through it; and so the ask that others begin to burden share the responsibility to ensure cargo’s safe passage doesn’t sound like an unreasonable request.
4/ Ultimately, the Iranians are as dependent as anyone on the ability to transport crude through the Straits; sanctions have been crippling for the Iranian econmy, but a closing of the Straits is a weapon Iran cannot deploy for any extended period of time without accelerating its own economic collapse.
3) So much of the coverage & mainstream narrative of the military situation is focused on the near-term day-to-day evolution of events without due consideration for what appear to be emerging, but increasingly clear, medium-term implications of this conflict.
Even with negotiations now clearly underway, a few of the medium-term consequences of the conflict that I’m considering include :
1/ As well as a significant loss of atomic & ballistic military development & capability, Iran has also given up a huge amount of local goodwill amongst neighbours in their closest proximity. The willingness of Iran to hit GCC neighbours directly was perhaps one of the greatest early surprises of this conflict. Saudi, the UAE, Qatar and others depend on a post fossil fuel world where Middle East “stability” is an iron-clad non-negotiable. Apart from Russia (& some may argue China), the Iranian regime has rarely (if ever) been this isolated before.
2/ Its inevitably difficult to judge what’s going on internally in Iran. Any efforts to would inevitably be speculative; however, it seems fair to assert that the resilience of the regime so far has surprised many. Nevertheless, the common view is that the successful decentralisation of military decision making & capability has been a central pillar of that resilience. Assuming that to be true, its probably correct that this current stage of negotiations must be a psychological battle for many across the regime, in both leadership & the military – in such a state of decentralisation, knowing who is negotiating with who on what terms must be nigh on impossible, thereby likely undermining the residual coherence of that decentralised modus of command. The massacre of 10s of thousands of civilian protesters earlier this year shouldn’t be downplayed when considering the domestic reaction function coming out of this conflict, whenever it should end; and similarly, an assumption that the resiliency of the regime will inevitably persist (just because it has to date) is probably an extrapolation too far.
3/ As an associated but integral element of point #2 on the Straits of Hormuz, there’s likely a durable restructuring of global energy routing which has been set in motion by this conflict, which will take years/decades to complete. How that shapes the region will be interesting; but so will the GCC political ambition & response as they endeavour to re-assert the all-important element of stability that has been so key to the Middle East’s increased global relevance, especially so in the post-Covid world.
4/ for those who have argued that Trump’s decision making is often governed by both financial market & opinion poll reactions, this episode appears to contradict that view. As such, it is increasingly hard to assess how much energy price pain & economic impact the US are willing to take to achieve their objectives here.
4) Across our equities business, this week has been the quietest (in terms of client activity) since the conflict began.
Intuitively that makes sense given a huge amount of risk-mitigation action has happened already (gold/silver continue to be my barometer of consensus position de-grossing), but also we’ve been for sale for 5 consecutive weeks, last week was the heaviest week of selling we’ve seen since ‘Liberation’ week, and CTAs/systematic funds are already now net short.
Despite this, its worth noting total gross exposure across our Prime book continues to tick higher, even as nets come down (charts below).
In addition, 2 other points seem self-evident at this stage:
1/ as per point #1, the difficulty factor in useful & confident analysis of the situation is unusually high, and so this remains a time for risk management over risk taking; and
2/ the longer the conflict continues & Hormuz remains shut to tanker traffic, the more the market is focused on the binary nature of the outcome (Straits open again, energy prices & rates stress eases, growth damage is contained; vs Straits remain closed, energy prices spike higher, second derivative price shocks escalate, the growth damage leads to pricing of recession probability in many geographies).
5) So far through March, markets have predominantly correlated to energy prices; especially so rates where price action has been extreme, volatility has made directional risk hard to manage, and where central bank hawkishness added to the shock.
As it relates to rates, the 2022 PTSD is clear, but this episode is very different; this is a headline inflation shock, and demand destruction will suppress second order impact & the threat of wage pressure (the opposite to 2022 when the problem was a moentary & fiscal juiced demand surge).
Of note, for the Fed we still forecast two 25bps cuts (in Sept & Dec) given the limited core inflation impact & the risks to employment; probably as importantly, Hatzius & team continue to emphasise the possibility of an extended energy shock driving near recession like outcomes which would trigger even deeper cuts.
The GS probability-weighted funds path is now 100bps below market pricing 1yr forward (1st chart). We’re currently forecasting 2 ECB hikes, and view an April BOE hike as a real possibility.
Despite the prospect of yields breaking higher (chart 2), its tough to escape the conclusion that if markets begin to price the left tail outcome of the conflict (prolonged SoH closure), much of the inflation risk premia is captured in front end rates already...
...and its now equity markets that offer the greatest downside asymmetry to a global growth shock (3rd chart is MSCI World down 7% off the high, while yesterday’s price action saw Nasdaq move into 10%+ correction territory & the emergence of real damage in the Momentum factor)...
In a similar vein, from a portfolio perspective there is the prospect that bonds begin to offer real ballast from here in an adverse scenario as they begin to price the growth risk, ahead of immediacy of the inflation shock.
6) Europe & the UK have shown their economic vulnerability once again...
...especially to the structural energy inter-dependence that hampered the region so obviously post Russia’s invasion of Ukraine, and the associated rates impact (where CBs operate to a mono-mandate, devoid of a growth/jobs sensitivity akin to the Fed). But- even for the US economy this shock comes at a trickier time, as fiscal boost wanes in 2h, and the FCI tightening will shave c 50bps from 2h growth; added to the murkier outlook is the labour market uncertainty which is likely now deteriorating further – this may feel like a long time already, but Dorsey’s BLOCK just cut a staggering 50% of their workforce, and META layoffs are running into the 10s of thousands. We’ve taken our US recession probability back up to 30%.
BOE : from this –
To this, in 1 month …
Nowhere has the scale of the rates been more abrupt than the UK (charts 1 & 2), but 1 key point I would flag as it relates to the UK/European equity outlook – investors moved quickest to cut risk here – in fact, the Long/Short ratio across our European prime book just tanked to a new 10yr low (chart 3)…
7) Interestingly, and in contrast to investor activity of the past 4 months, European corporates have responded very differently:
4 deals have been announced (3 where minority equity holders have looked to opportunistically consolidate targets) during this period of market stress: Poste Italiane for Telecom Italia, Unicredit for Commerzbank, CVC for Recordati, and Estee Lauder for Puig. Perhaps
8) When I think about where in equities is the best place to be adding risk coming out of this, many of the places are intuitively clear with existing themes that are likely only reinforced by the conflict – and relative performance of those has shown well through March. Whether its energy capex, European ‘power-up’, defense spending, or AI capex investment – these themes that we liked as relative outperformers coming into this, will likely remain preferred investments on the other side. The tables below show relative best & worst performers on the month across the US & Europe, while the 1st chart shows the clear relative strength persistence of our ‘Power-UP Europe’ theme.
I’d also highlight our HALO work (heavy assets, low absolescence) which has perfectly captured the market transition from growth to value, and from asset-light to asset-heavy that.at I’ve long stressed. The increase in capex intensity we’ve witnessed across industries (show in chart 1) will not abruptly halt post-Iran; in fact, maybe just the opposite.
Have performed because capex is really picking up, most of which will be reinforced coming out this confli
9) On the flip side, 3 sectors which have traded terribly are going to get interesting, contingent on conflict outcomes:
1/ UK real estate, homebuilds & REITs have traded the gilts rate shock exactly as you’d imagine they would. I don’t see the UK realising 3+ hikes under any scenario; but the path to fewer cuts is somewhat binary - energy price pressures ease and there’s a limited headline inflation shock; or larger energy price shock and associated demand destruction which removes any need for additional tightening action from the BOE. If the first scenario materialises, the ongoing supply side driven recovery in this sector will make the stocks compelling.
2/ outside of oil & gas, global resource stocks have already traded both a supply & demand disruption story; perhaps they were always vulnerable given the run they’d been on; nevertheless, the key pillar of increased resource nationalism remains in tact, aided by ongoing consolidation, and many names will be worth revisiting as the dust settles.
3/ perhaps the easier risk relaxation trade is banks upside (which we’ve seen traded in reasonable size through this week). Of note, at a time when equities offer little valuation/risk premia cushion to downside shocks, financials is the only cyclical sector that hasn’t traded to valuations far in excess of the 20yr 10th-90th percentile range :
10) Tech sector Q1 performance is bottom decile over the last 50 years (chart 1), similarly, Microsoft’s had the worst start to a year since 200oo// In any ‘normal’ (?!) market environment, the twin issues of hyperscaler capex consuming 90% of the FCF of the world’s most cash generative businesses (chart 2 = hyperscaler px/FCF multiples), and the well-covered software private credit issues would be consuming enough for investors to navigate.
We’ve written comprensive work on the private credit issues (here); but any credit underwriting where asset backing & recoveries weren’t considerations was always going to end with a bump. Increasingly this looks like more of a private credit product issue, than a software-wide industry issue. Nevertheless, for listed software names a lot of disruption risk is now embedded in valuations for stocks which look likely to be compelling adopters & deployers of AI tech; for those hunting opportunities, these 2 are essential reading, here and here.
To reiterate a theme articulated in key themes for 2026, we’re clearly now at ‘the end of the beginning’ of the AI trade. But given the reset in prices & valuations across large swathes of the tech sector – opportunities are emerging again (NVDA at 15x 12mth fwd PE, MU at <4x ntm EPS…). As our strategy team...
...am articulated well, this is now about “the broadening & narrowing of the AI trade”…
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