Solomon says investors may need weeks to price full impact
Goldman Sachs Chief Executive David Solomon said Wednesday he was surprised by the relatively calm market reaction to the widening conflict in the Middle East, arguing it could take weeks for investors to fully absorb the economic and financial implications. Speaking at a business summit in Sydney, Solomon said the response has been milder than he would have expected given the scale of the events.
“I look at the market reaction, and I’m actually surprised that the market reaction has been more benign given the magnitude of this as you might think,” Solomon said. He added that markets often respond in a muted way to geopolitical developments unless they translate into a clear hit to economic growth.
Solomon warned that the longer the conflict and its knock-on effects persist, the greater the chance of a harsher repricing as investors weigh short- and medium-term risks. He said it is difficult to speculate given how many variables remain unknown, but added, “I think it’s gonna take a couple of weeks for markets to really digest the implications.”
Oil spike, stronger dollar and sliding indexes signal risk shift
Markets have shown signs of risk aversion as the conflict raised concerns about energy supply disruption. Oil prices have jumped, increasing investor sensitivity to inflation risks. Global stock indexes have fallen and the U.S. dollar has strengthened as investors reduced exposure to riskier assets and moved into traditional safe havens.
Still, Wall Street’s decline has been limited so far. The S and P 500 was down less than 1% for the week after recovering from early losses into the close on both trading days, according to the figures cited. Solomon’s remarks highlighted the gap between visible macro stress indicators, such as energy prices, and the still-contained moves in major U.S. equity benchmarks.
U.S. macro tailwinds remain supportive, Solomon says
Solomon said the underlying U.S. growth backdrop remains constructive, pointing to an easing monetary cycle and what he described as significant regulatory relaxation as factors supporting the economy. “Let us put aside what’s going on in the Middle East at the moment,” he said, adding that a confluence of macro tailwinds makes the U.S. growth trajectory compelling.
He said there is a reasonable probability the U.S. economy runs somewhat hot this year, which could lift inflation above consensus expectations. The comment reflects a view that the near-term risk set includes not only geopolitical shocks but also a domestic demand picture that may keep price pressures firmer than markets assume.
Private credit resilience now, but standards risk in a downturn
Solomon said U.S. private credit portfolios have generally held up well, supported by the economy’s resilience. He also warned that a long credit cycle combined with competition to deploy capital can weaken lending standards, a vulnerability that may only become visible when growth slows.
“Lending standards come down because there’s a competition to deploy capital,” he said, adding that he is concerned about what that could mean if the economy enters a slowdown or recession. He said a downturn would likely reveal areas where standards have eroded, increasing the risk of credit losses.
AI seen disrupting white-collar work, with headcount effects unclear
Solomon also addressed artificial intelligence and employment, saying AI is likely to disrupt the labor market in the short term, particularly for white-collar roles, but he does not expect it to create a long-term labor gap. In February, Goldman signed a deal with AI company Anthropic to develop AI-powered agents aimed at automating processes including client onboarding.
He said the near-term effects on Goldman’s workforce would be complicated and declined to speculate on future headcount levels, noting the bank does not disclose those projections publicly. He said the goal is to create capacity to move employees into different roles and that the overall headcount may not change significantly, but productivity should improve.
