Goldman Sachs CEO Solomon: The market's mild reaction to Iran is surprising; it may take several more weeks to fully digest.

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The financial markets’ response to the Middle East war has been surprisingly calm. Goldman Sachs CEO Solomon said that this situation surprised him, but he also warned that it will take several weeks for the markets to truly absorb the impact of the conflict.

According to Bloomberg, Solomon said at the Australian Financial Review Business Summit in Sydney on Wednesday that there are still too many unknown factors, and investors are assessing whether this conflict will develop into a prolonged war, as well as whether it will begin to affect consumption. The U.S. commitment to ensuring the security of shipping in the Strait of Hormuz has to some extent stabilized market sentiment.

Meanwhile, the shockwaves of the Iran war continue to spread. Israel launched a new round of air strikes against Tehran, and Iran fired missiles at Qatar, Bahrain, and Oman, with Qatar indicating that the targets were not limited to military facilities. In terms of inflation expectations, rising oil prices have triggered market concerns about a resurgence of inflation, and traders are lowering their expectations for Federal Reserve rate cuts.

According to Xinhua News Agency, CNN reported on the 3rd that since the US and Israel launched military actions against Iran, the US President’s envoy responsible for US-Iran negotiations, Wittkoff, has not had diplomatic contact with the Iranian side.

It will take several weeks for the markets to truly absorb the impact of this conflict

"I saw the market’s reaction and I was actually quite surprised," Solomon said. "The market’s reaction has been rather mild."

He stated that, given the many unknown variables in the current situation, it is difficult to predict at this stage. However, Solomon also pointed out that the surge in the VIX index and other volatility indicators was not unexpected.

"It will take several weeks for the markets to truly absorb the impact of this conflict," he said, and all of the events occurring will have cumulative effects that could lead to a stronger response. So far, such cumulative effects have not been observed.

The inflation pressure brought by rising oil prices has prompted the market to reprice the Federal Reserve’s monetary policy path, and the inflation rebound risk triggered by the Iran war is threatening the global economy.

Solomon said that the US endorsement in guaranteeing shipping in the Strait of Hormuz is one of the key factors supporting market sentiment at present, but whether this situation can be sustained still remains to be seen over the coming weeks.

Despite increasing geopolitical risks, Solomon remains optimistic about the US economy’s medium-term prospects. He pointed out that the start of the expansionary monetary cycle and significant regulatory easing together provide a firm foundation for the US economy.

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