Three reasons Goldman's co-head of global banking and markets says to stay invested

• Varadhan does not expect Fed rate hikes in 2026, contrary to market pricing that had reflected some tightening risk, with trader bets on a September hike falling to around 50% following recent data
• AI is expected to become a disinflationary force as productivity benefits materialize once infrastructure buildout is complete, offsetting near-term inflationary pressures from resource strain
• Oil prices are projected to fall well below $70 per barrel by late 2026, though crude climbed back above $80 on Monday amid uncertainty over U.S.-Iran negotiations regarding Strait of Hormuz shipping

Summary: Goldman Sachs Advises Staying Invested Despite Market Concerns

Key Message: Ashok Varadhan, Goldman Sachs' co-head of global banking and markets, recommends investors remain in the market, citing three positive factors that support a constructive outlook.

Three Supporting Factors:

1. Interest Rates: Varadhan expects the Federal Reserve will not raise rates in 2026, despite market pricing reflecting some tightening risk. He believes "rates are going to stay on hold," contrasting with market odds that showed 50% probability of a September hike and 63% for October (as of the article date).

1. Oil Prices: He anticipates crude prices will decline significantly to "well below $70 a barrel, maybe even lower" in late 2026, providing inflation relief. This outlook comes as oil climbed above $80 per barrel amid uncertainty over U.S.-Iran negotiations regarding the Strait of Hormuz.

1. AI and Productivity: While AI infrastructure buildout may create near-term inflationary pressures, Varadhan expects artificial intelligence to become a disinflationary force through productivity gains once capacity is established.

Economic Outlook: Varadhan emphasized the economy's resilience despite external shocks, with strong underlying nominal growth. He remains constructive on credit markets, expecting relatively low default rates if exogenous pressures fade.

Market Context: The S&P 500 has rallied to record highs with 2026 gains exceeding 13%. Inflationary forces, including tariff impacts, are beginning to recede, and easing geopolitical tensions could further alleviate price pressures.

Bottom Line: Goldman Sachs maintains an optimistic stance, recommending investors stay committed to markets based on stable rates, falling oil prices, and economic durability.