GS Tiwana Global Reflections Iran Escalation Energy Inflation Bond Selloff Midterms 4 Sep 2026

GS Tiwana - Global Reflections Iran Escalation Energy Inflation Bond Selloff Midterms 4 Sep 2026 Natasha Tiwana · Goldman Sachs · Vice President · FICC & Equities 4 Sep 2026

Iran escalation, energy inflation, global bond sell-off/rebound and election anxiety, all in what’s meant to be the last relatively quiet week before year-end. So, what happened in August? The commodity/real asset trade had a phenomenal run, long-duration & politics-sensitive trades declined and US momentum suffered another painful drawdown, ending the month at -5% YTD performance. The composition of momentum and what drives the market from here is changing, what is not changing is high thematic and factor vol amid contained index vol. Five key points as investors frame their ‘back to school’ playbook:

Stuck between a rock and a hard place… Elevated risk appetite and potential for a growth shock limit upside in equities while the recent valuation de-rating and scope for a scale back of hawkish rates pricing reduces the probability of a large drawdown. September’s FOMC decision could tip the balance in either direction, though Waller’s recent comments did lean in the ‘on hold’ camp. We note continued demand for tactical hedging into the meeting, especially as the recent implied vol reset makes option implementations attractive. While the hefty weight of AI in index hedges stifles their appeal amid potential for an aggressive AI recovery, SPXXAI is our preferred choice for a broad market hedge.

Rates Rollercoaster. Iran escalation early in the week drove a rally in front-end yields and sell-off in popular dollar debasement trades (GSXGOLDM), but Waller’s dovish comments scaled back market pricing of a September Fed hike. Ongoing yield volatility has resulted in demand for rate-sensitive basket hedges. Historically Non-Profitable Tech (GSXUNPTC) has been amongst the most rates reactive, but hesitation to short AI/Tech related exposure has prompted demand for a sector-neutral expression where we’d flag our L/S Wolfe 10y rate sensitive pair (GSPU10YR).

US MIDTERMS: We are currently in a full Republican government where the President, the House, and the Senate are all Republican. This means the outcome of the election is either: unchanged full Republican government or a divided government where Democrats take majority of either/both House and Senate. The more actionable question for investors is which policy areas become easier to negotiate, receive greater regulatory attention, or gain leverage in future spending debates. We see noise impacting 3 parts of the equity market in a scenario where Democrats gain majority of House/Senate: (1) Affordable Care Act exposed equities (GSHLCACA) are expected to benefit while companies that produce drugs (GSHLCBPH) are expected to face challenges if there are controls on the price of meds. (2) Republicans have boosted defense spending (GSXUDFNS) while cutting spending in other areas (remember DOGE?). We could see non-defense government spending boosted (GSXUGOVT). (3) Public sentiment assumes datacenters are disliked across the board. US households blame datacenters and AI for higher electricity prices. If more electricity is generated to support US households and the AI build, electricity prices will normalize. We like buying Power Infrastructure (GSENEPOW).