Goldman Sachs: The three major long-term bullish factors for US stocks are all collapsing, and Iran has intensified the trend.

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On March 4 during US trading hours, multiple assets experienced dramatic volatility. Chris Hussey from Goldman Sachs’ trading division said in a client briefing that day that the “three major long-term positives” the market had relied on over the past year are now simultaneously faltering, a shift amplified by the escalation of conflict involving Iran.

The framework supporting US stocks had been as stable as a “three-legged stool,” coming respectively from the long-term tailwinds of the AI revolution, the momentum of “echo boom” post-pandemic, and expectations for a more “market-friendly” monetary policy as the Fed approaches a leadership change late this spring.

But Hussey emphasized that this “three-legged stool” is now being struck by uncertainty on all three legs at once. As AI moves from “revolution” to “disruption,” compounded by an energy shock from Iran, the market can no longer rely on a single narrative to explain price movements, and risk appetites are more easily unsettled by outbreaks of new information.

The first cracks appeared in the AI narrative. As early as late last year, market focus had already shifted from the “AI revolution” to “AI disruption.” This underlying change was especially evident in January and February’s market performance, with the software sector facing immense valuation pressure. With the escalation of the Iran conflict, the other two legs supporting the market—cyclical momentum and expectations for Fed rate cuts—have also been fundamentally shaken.

The market has already signaled this: The S&P 500 opened below a recent clear range, the 6800 level flipping from support to resistance, and the trading mode shifted quickly from “buying the dip” to “risk control first.”

The Iran Situation Breaks the Logic of US Stock Rallies

The sudden escalation in Iran’s situation became the key catalyst breaking market equilibrium. Conflict in the Middle East triggered sharp volatility in oil and gas prices, directly impacting global supply chains and sparking cross-asset sell-offs in financial markets—with stocks, bonds, gold, and cryptocurrencies all tumbling in tandem.

The surge in energy prices has quickly magnified the risk of a rebound in inflation and poses a direct threat to economic growth. This unexpected variable greatly cooled optimism that the Fed would begin a rate-cut cycle soon, causing long-term yields to rise as investors were forced to reprice the continuation of the tightening era.

Addressing this complex market turmoil, Goldman Sachs analyst Chris Hussey made it clear that with AI gains ebbing, cyclical momentum weakening, and monetary policy facing uncertainties, navigating the current “red ocean” is becoming exceptionally difficult for investors.

Energy Surge Erodes Growth and Valuations

The most direct transmission channel of geopolitical turmoil is through energy prices, which effectively erode US macro fundamentals. Due to soaring crude prices, the risk of rising inflation may suppress global economic growth, further weakening the cyclical positives that had offset the “AI disruption” headwinds.

Goldman Sachs analyst Jessica Rindels provided quantitative impact estimates. She noted that Brent crude’s near-month contract has risen about $10/barrel since last Friday’s close. From a macro perspective, every $10 increase in oil prices is expected to reduce US GDP growth by about 10 basis points.

In the current market environment, this 10 basis point slowdown carries amplified destructive power. The S&P 500’s price/earnings ratio (P/E) is at a historical high of 22x. With such expensive pricing, any uncertainty about the path of economic growth and corporate profits can trigger disproportionate sharp corrections in the stock market.

Inflation Rebound Locks out Fed Rate Cuts

More worrying to investors than economic slowing is the way energy prices reshape the inflation trajectory, directly determining the Fed’s next moves.

Jessica Rindels expects that if oil prices continue rising by 10%, core CPI will be pushed up by 4 basis points, and headline CPI by 28 basis points. If the oil rally proves persistent, US headline CPI year-on-year growth in May will rebound to 3.0%, and remain above Goldman’s prior baseline projection throughout the year.

The logic is quite clear: In a world where inflation returns to 3%, the theoretical basis for Fed rate cuts disappears. This stands in stark contrast to the prior expectation that inflation would fall to 2.0% by year-end, accompanied by successive rate cuts.

Volatility Will Spread Across Assets

The Middle East situation continues to impact global energy supply in substantive ways. Goldman Sachs analyst Sam Dart has sharply raised forecasts for European natural gas prices in the first half of 2026 by about 50%, to reflect a 20% decrease in LNG supply from Middle Eastern production and transport disruptions.

Energy market pricing strictly follows supply and demand economics. Chris Hussey and the Goldman team conclude that until a clear picture of the energy supply disruptions emerges, violent energy market volatility will become the norm. For investors, the most realistic risk is that this high volatility will not be confined within commodities, but will continue to spill over widely to stocks, bonds, and other financial markets.

Risk Warning & DisclaimerThe market carries risks, and investments must be made cautiously. This article does not constitute individual investment advice, nor does it take into account the unique investment objectives, financial situation, or needs of any individual user. Users should consider whether any opinions, views, or conclusions presented herein fit their specific circumstances. If you invest based on this, you do so at your own risk. ```