Three major "reflexivity" shadows hang over the market.
The global market is currently facing three mutually reinforcing reflexive cycles: oil price politics, mega-scale cloud vendor capital expenditure, and AI debt risk. Goldman Sachs warns that the negative feedback mechanism formed by the combination of these three factors places the current market on a fragile and dangerous balance.
This week, Goldman Sachs 1-Delta trading head Rich Privorotsky pointed out in the latest client report that the dual pressure of soaring oil prices and rising interest rates is making the market increasingly difficult to digest, and the negative impact on the bond side has sharply worsened.
He stated, unless there is substantial political easing, the market will have to absorb risks on its own, driving the situation in a worse direction.
Meanwhile, the uncontrolled expansion of tech giants’ capital expenditure and the collapse in prices of AI infrastructure-related bonds are shaking investors’ confidence in mega-scale cloud vendor narratives.
Privorotsky warns that betting on these companies is increasingly turning into a high-risk wager on "whether revenue inflection arrives before the expenditure peak."
Oil Price—Politics—Inflation: First Reflexive Cycle
The two-way feedback mechanism between oil prices and politics is the first reflexive chain that Privorotsky is most concerned about.
This week, Brent crude prices briefly broke through $100 per barrel, putting market expectations around Trump’s policy response to the test.
Previously, the general market expectation was that once oil prices broke through a certain threshold—thus pushing up retail gasoline prices and dragging down presidential approval—Trump’s administration would intervene to suppress oil prices.
This expectation has to some degree supported stock market resilience, but Privorotsky points out that every day that policy response fails to materialize at the same price level, the more the market is forced to drive outcomes itself.
Interest rate shocks are becoming the most difficult variable to ignore in this cycle.
Meanwhile, the transmission of energy costs to food inflation is about to become reality.
Warning signals have already appeared in the real economy—despite record revenues, rising ticket prices, and steady demand, American Airlines still lowered its 2026 performance guidance because its fuel costs have risen by about $1.6 billion since early July.
The geopolitical aspect continues to heat up.
According to CCTV News, on July 24, local time, President Trump spoke at the White House about the “exit strategy” for war with Iran, saying the US has two options: one is to continue current military operations and possibly intensify strikes to gradually destroy Iran’s military capability; the second is to reach an agreement through negotiation.
WallstreetCN mentioned, earlier that day, according to Reuters citing sources, Pakistan is exploring ways to restart stalled US-Iran talks.
Israeli Prime Minister Netanyahu will visit the White House next Tuesday to meet with Trump. Privorotsky suggests this timing may be brewing a "TACO moment"—that is, a sudden negotiation or compromise market event.
Mega-Scale Cloud Vendor Expenditure: Second Reflexive Cycle
The second reflexive cycle revolves around mega-scale tech companies’ capital expenditure, with the core contradiction being whether the market is still willing to regard massive investment as a costless growth signal.
Google has become the negative symbol of this tech earnings season. The company announced it would raise its 2026 capital expenditure guidance to $195–205 billion, with quarterly free cash flow at negative $5.9 billion, and its stock fell 6.9% immediately.
Cloud business growth of 82% and other operating metrics were bright spots, but the market is no longer willing to view expenditure as costless strategic investment, and probing for product roadmaps and investment returns has received almost no positive response.
The more far-reaching impact is the transmission of competition. If Google increases spending, it will force industry peers to follow suit, putting pressure on the whole mega-scale cloud computing sector. The hardware side is also in trouble:
STMicroelectronics core profit missed expectations, third quarter revenue guidance was somewhat weak, stock fell about 14%;Texas Instruments (TXN) performance was relatively stable, but still closed down 3%.
In the AI competitive landscape, Privorotsky points out that the gap between frontier closed-source models and Chinese open-source models has narrowed significantly.
He states that previously the gap measured at nine to twelve months is now compressed to several weeks in some benchmarks. The cost and marginal benefit ratio of pre-training versus reinforcement and post-training is creating distinct economic models; the intensity and flatness of competition at the application layer are historically rare.
He believes that risks brought by small models and efficiency improvements are still "a story for later," but should not be underestimated.
AI Infrastructure Debt: Third Reflexive Cycle
The third reflexive cycle is hidden in the bonds and financing structure of mega-scale tech companies.
Privorotsky regards the bond market as the most noteworthy risk signal at present.
For example, Meta completed its "Hyperion" financing via the Beignet SPV. This $27.3 billion bond was issued at face value, traded above 109 for a while, and now has fallen back near 95.
Although the overall financial condition of mega-scale cloud vendors remains sound, balance sheet leverage is not high, but the repricing of valuations has significantly depressed stock multiples.
The more severe problem is that as capital expenditure accelerates, the conversion rate of free cash flow continues to deteriorate, and leveraged entities providing infrastructure financing will suffer even more intense shocks.
Privorotsky warns that today’s capacity expansion may evolve into tomorrow’s computing power surplus, and at that time, even larger depreciation expense will start to wash out the income statement.
Outlook: Microsoft Earnings & CXMT IPO as Key Catalysts
Looking ahead, Privorotsky identifies two major events as important tests of the reflexivity thesis.
The first is Microsoft’s earnings call this Wednesday. He believes, "If the reflexivity thesis is to play out, this may be the most critical call."
The market will closely scrutinize Microsoft's balance among capital expenditure, cloud growth, and free cash flow to determine if the mega-scale tech narrative can stabilize.
The second is the listing of Chinese memory chip company CXMT (ChangXin Memory Technologies) on the STAR Market. CXMT is already the world’s fourth largest DRAM producer, and this IPO will raise about $8.6 billion.
Privorotsky emphasizes, "This is by no means an insignificant new competitor." If post-listing trading aligns with the off-exchange perpetual market implied valuation, it will have a major impact on the entire memory chip sector.
Privorotsky summarizes the current situation in one sentence:
Feels a bit like a recursive reference on the oil price issue.
In a reflexivity-dominated market, every variable is both cause and effect.
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