Market Pulse May
Market Pulse May
Market Pulse May
The US remains relatively resilient as a net energy exporter, though higher-for-longer prices may weigh on consumer demand in the coming months. Tax refunds may provide a near-term buffer, while AI capex and productivity gains remain a powerful longer-term trend. Our colleagues in Global Investment Research expect 2026 growth of 2.3%, core inflation ending the year at 2.5%, and still see capacity for the Fed to cut later in the year.
The Euro area is more vulnerable to energy disruption, though we expect the aggregate shock to be smaller than 2022 given a more modest manufacturing impact and summer seasonality. Our research colleagues forecast 0.7% GDP growth for 2026 and two ECB hikes in June and September before cutting back to 2% in 2027.
Our research colleagues see 3.6% 2026 GDP growth, led by China’s 4.7% as resilient export growth and policy easing offset headwinds from higher energy prices and weak domestic demand. Broadly, AI and energy remain key themes.
Source: Macrobond and Goldman Sachs Asset Management. As of April 30, 2026. Past performance does not predict future returns and does not guarantee future results, which may vary. For illustrative purposes only.
When the conflict in the Middle East weighed on equity prices in March, earnings expectations kept marching along. In doing so, we got a meaningful shift in multiples – particularly in the US and EM. We believe equities can continue to look past the present situation and focus on future earnings and growth potential. However, during potential pockets of volatility we would expect equity income and dividend strategies to outperform.
Physical oil markets have rapidly tightened as estimated oil flows from the Persian Gulf (including pipeline redirections) are at 40% of normal levels and oil-on-water approaches an all-time low. However, market participants are pricing a high probability of short-lived disruption, with Brent priced to end the year in the $80s. We think oil around $90 is more likely if flows normalize in June, though the upside risk from longer disruption and more persistent supply losses is significant.
Government bond markets are highly attuned to energy-induced inflation risk, but we think central bank playbooks will differ from 2022 for a few reasons: inflation is closer to trend, wage-price spiral risks are limited, and policy rates are starting at more restrictive levels. As such, we see scope for rate relief in the year ahead and value in duration.
Asset Class Forecasts: Price targets of major asset classes are provided by Goldman Sachs Global Investment Research. As of May 1, 2026.
Emerging Opportunities
Emerging market equities have a high beta to global growth and energy prices, as we have experienced in this year’s volatility and rapid recovery. As geopolitical risks recede, we see renewed potential in EM given strong earnings, lower valuations, and conservative positioning. We would continue to expect differentiation across markets, with LatAm and North Asia outperforming on cyclical and secular tailwinds, and believe an active approach is key to accessing the right potential opportunities. In fact, 92% of active EM managers have beaten their benchmark through Q1 according to Morningstar data.
Source: Bloomberg and Goldman Sachs Asset Management. As of April 30, 2026. Chart shows the difference in equity market performance versus the MSCI World for every 10% rise in oil prices.
The evolution of the energy disruption will be critical for EM, though the relationship to oil differs across economies. LatAm exporters may benefit from higher energy prices, while Asian importers have historically been more challenged. Of note, China has increased resilience in recent years by shifting towards renewables (now 10-15% of energy consumption) while also building the world’s largest oil reserves (approx. 1.5 billion barrels, equivalent to ~4 months of imports).
Source: Bloomberg and Goldman Sachs Asset Management. As of April 30, 2026.Chart shows the 12-month forward price-to-earnings (P/E) multiple and earnings per share (EPS) estimate for the MSCI Emerging Markets Index.
Despite the macro uncertainty, consensus earnings expectations have continually been revised higher since the start of the year. That has led to an attractive de-rating of EM equities, with 12m forward P/E now trading at 12x and below the 10-year average. We expect AI themes to be a major driver of EM earnings, with AI-related demand contributing nearly 70% to our EPS growth forecast for 2026.
Source: Macrobond and Goldman Sachs Asset Management. As of March 31, 2026. Chart shows the growth in Asian semiconductor exports and the relative performance of the MSCI Emerging Markets Index and the MSCI World Index. “Picks and shovels” refers to the essential infrastructure or tools of an emerging industry.
EM economies are a critical source of “picks and shovels” for the AI buildout, accounting for two-thirds of global semiconductor production. Demand continues to climb, with South Korean exports alone rising from $20 billion in December to $30 billion in March 2026. While higher input prices may weigh on margins, we believe North Asia will still be able to secure oil and gas supplies, and AI customers may be willing to pay higher prices for hardware given growing compute constraints.
