What's Top of Mind in Macro Research Further Middle East escalation, AI volatility, IPO and debt surge

Economics Research 23 July 2026 | 4:26PM EDT

What’s Top of Mind in Macro Research: Further Middle East escalation, AI volatility, IPO and debt surge

This week: Jenny Grimberg | n Further Middle East escalation, even higher energy prices Goldman Sachs & Co. LLC

Allison Nathan n AI volatility, non-AI opportunities | Goldman Sachs & Co. LLC n An IPO and debt surge Ashley Rhodes | Goldman Sachs & Co. LLC Transcript

Further Middle East escalation, even higher energy prices Further escalation in the US-Iran conflict and reported Houthi strikes on Red Sea tankers have led oil prices even higher, and we think Brent prices could exceed $120/bbl in 4Q26 and average $100/bbl in 2027 if oil flows through the Strait of Hormuz remain disrupted through next year, with further upside possible if Bab-al-Mandab Strait and Suez Canal flows are also persistently disrupted. To protect against such a price spike, we recommend that investors and consumers go long the December 2026-March 2027 European diesel timespread.

The escalation has also pushed TTF natural gas prices higher and has led us to push back our timeline for the normalization of Persian Gulf LNG exports (from July to October), which we think will tighten European gas balances and leave the region more vulnerable to a winter cold shock. This increases the risk that TTF prices may need to rise to €65/MWh to disincentivize Asian LNG demand, prompting us to recently raise our Bal3Q26/4Q26 TTF price forecasts to €60/53/MWh (from €41/40/MWh).

Despite the energy price rebound, we don’t expect the Fed to hike at next week’s meeting owing to the better recent US inflation news. And we think hikes at subsequent meetings would require significantly higher inflation and/or lower unemployment than we currently expect, though we find that hikes may not help much in addressing high inflation caused by supply shocks. The rebound similarly didn’t lead the ECB to hike at today’s meeting, as we anticipated. But we continue to expect that the ECB will hike again in September, especially as the rebound has undone recent Euro area inflation progress, with the risks skewed toward further hikes.

AI volatility, non-AI opportunities The AI trade has experienced a volatile period, with our long/short Momentum

Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to

Goldman Sachs What’s Top of Mind in Macro Research

factor registering an annualized volatility of 37% over the past three months—the highest level in its 45-year history outside of recessions. We continue to think that volatility will persist as the debate around the size and distribution of AI gains remains center stage. As such, we see value in investments that are unrelated to the AI trade with minimal correlation to our AI baskets or the Momentum factor, recently highlighting three such opportunities: consumer experience stocks, “compounders”, and M&A candidates.

Momentum factor volatility has surged to the highest level in its history outside of recessions Momentum factor 3-month realized volatility, %

Source: Goldman Sachs Global Investment Research.

An IPO and debt surge The already-record amount of US IPO-related issuance this year has prompted concerns about a market downturn and digestion issues. We find that the late-cycle warning signs that have historically accompanied IPO booms aren’t evident today and view the worries about whether the market can comfortably digest so much new issuance as overdone. But we note that indigestion worries are broader as AI-related debt issuance has also grown significantly this year. As such issuance grows further, we expect issuer concentration and market saturation constraints will become increasingly binding. Accordingly, we expect that a range of financing markets will ultimately be required to satisfy the AI-related financing need. Beyond adding to digestion concerns, increased AI-related debt issuance has also sparked debate about whether it is crowding out corporate debt supply from other sectors or US Treasury issuance, which we find little evidence of so far.

What else…