Goldman Sachs has attributed the roughly 7% shortfall in European equity performance relative to global markets since the onset of the conflict to three central forces: energy uncertainty, rising interest rates, and Europe’s limited exposure to AI-driven technology gains.
Energy and gas price dynamics
The bank highlights natural gas as a particular vulnerability for European economies, which display greater sensitivity to gas than to oil. While Brent crude has softened to levels below $90 per barrel as global demand weakens, Goldman’s commodities team revised its assumption on normalization of Strait of Hormuz flows from end-June to end-August. The firm cites two drivers of higher gas prices: peak summer demand in emerging markets and inventory rebuilding in developed economies ahead of the cold season.
Monetary policy and growth expectations
Monetary tightening is also in focus. The European Central Bank raised its policy rate by 25 basis points, and market pricing continues to imply further near-term tightening. Goldman’s economists have revised their growth and inflation outlooks for the euro area following the conflict: they now expect euro-area GDP growth of 0.2% year-over-year in Q4, down from 1.4% before the war, and headline inflation of 3.4% year-over-year in Q4, compared with a 1.5% expectation prior to the conflict.
Concentration of global equity gains in AI and tech
Goldman points out that global equity returns this year have been concentrated in technology and AI-related sectors. U.S. equities are up 8% year-to-date, but that figure drops to 2% when AI-related gains are excluded. Similarly, Asia ex-Japan is up 18% year-to-date, yet turns negative when excluding AI-driven markets such as Korea and Taiwan. Europe’s relatively small weight in high-growth technology stocks limits its ability to capture that portion of market upside.
Outlook on energy, rates and asset allocation
On the geopolitics and commodities front, Goldman notes reporting that the U.S. and Iran appear to be moving closer to an agreement to reopen the Strait of Hormuz, and expects Brent to trend toward roughly $90 per barrel by Q4. On interest rates, Goldman’s economists are more dovish than the market consensus on further central bank tightening. The firm’s rates strategists anticipate the U.S. 10-year yield to fall by about 10 basis points into year-end.
Sector positioning
Goldman’s sector preferences reflect these assessments: the bank favors technology, banks, aerospace and defense, renewables, and HALO sectors, while maintaining underweight positions in autos and chemicals.
Note: performance datapoints and market tickers referenced in market snapshots reflect intraday moves cited alongside Goldman’s commentary.