What’s on the Minds of Our CIOs?
What’s on the Minds of Our CIOs?
What’s on the Minds of Our CIOs?
As we look into 2Q26, we explore three themes rising to the top of investor focus:
- Commodities at the center of AI infrastructure demand, global energy security, and critical mineral supplies.
- The transformative Mega-IPO Cycle as AI titans prepare for historic public debuts.
- Japan’s structural pivot to a labor-scarce, rising rate economy.
Featured Takeaway from the Day
Reflecting the themes discussed by our CIOs, Alexandra Wilson-Elizondo, Chief Investment Officer, Multi-Asset Solutions, discussed how our base case remains constructive, but the rising geopolitical risks and credit risk, both immediate and tail, call for a more measured approach. Even before recent events, stretched valuations across financial assets had been a growing concern, and that unease was compounded by shifts in the credit landscape and a stalled labor market. Rather than leaning broadly into risk assets, we believe this environment favors a more selective posture, one focused on capturing risk premia, prioritizing quality, and emphasizing diversification as we monitor whether these headwinds intensify.
What in our Macro and Market Convictions Changed from Last Quarter?
- Equities: While remaining constructive, there is a new level of caution regarding elevated global valuations despite recent market pullbacks, with downside tail risks having grown fatter.
- Credit: Our investors have moved to a more cautious stance on European credit due to its exposure to potential energy shocks. There is also a specific new caution regarding AI-related software risks and their potential spillover into the credit market, particularly concerning lower-quality US collateralized loan obligations (CLOs).
- Currencies: Our bullish stance on the US dollar is now explicitly balanced against the risk of a sharp unwind of the AI trade.
Outlook and Views
Middle East instability has introduced heightened market volatility, directly informing our near-term investment views. The conflict's duration and its impact on energy pricing remain the primary determinants of the immediate market trajectory.
Our multi-asset solutions team sees above-trend growth in Developed Markets (DM), with AI capex and high-income household spending strengthening US growth potential and German fiscal stimulus driving growth in the Euro Area. However, the range of potential outcomes around this base case has grown wider.
Our Fixed Income team is watching the potential impact of a fragile US labor market, as the “low hire, low fire” environment may introduce negative growth shocks in the market.
Instability in the Middle East remains key to the energy outlook, and the duration of the conflict will be a critical determinant of energy prices, which have already put upward pressure on US yields and inflation expectations.
For markets outside of the US, we observe a deceleration in underlying inflation in the UK, though energy price shocks may induce a renewed headline bump. Japan’s underlying inflation remains well above target.
In the US, our base case remains for two Federal Reserve (Fed) rate cuts this year, though timing is uncertain given current geopolitical upheaval. The Fed is likely to operate from a baseline assumption that the inflation impact of the conflict will be transitory; however, as long as the labor market remains solid, policymakers will see little risk in delaying further rate adjustments to validate this assumption.
On international Developed Markets policies, we believe the Bank of England (BoE) may stay cautiously on hold, stuck between a weak jobs market and an upward shock to already-high inflation. The European Central Bank (ECB) is likely to be firmly on hold, but deteriorating supply/demand at the long end should put steepening pressure on the curve. The Bank of Japan (BoJ), meanwhile, remains on track to hike in April.
We are constructive on global equities due to strong corporate fundamentals as evidenced by recent earnings season results. Tariff uncertainty has also eased to provide more tailwinds to major economies.
However, risks related to geopolitics and AI disruption continue to be top of mind. Despite recent equity market pullbacks, we believe global valuations remain elevated and the compensation for taking equity risk appears somewhat limited. Recent volatility and dislocations have nonetheless created pockets of opportunity in certain areas.
Our Fixed Income team maintains a neutral stance on US Treasuries. The timing of Fed easing remains very sensitive to developments in the Middle East. While a quick resolution to the conflict could allow for a resumption of “normalization cuts”, a protracted period of higher energy prices could see the timeline for easing pushed back. Our Liquidity Solutions team recently looked at what a Warsh-led Fed could mean for the US central bank’s balance sheet and money markets.
We think the bar for a BoE hike is high given policy rate is restrictive and labor market is weak. There is still a chance for H2 cuts while the market is pricing in a hike now. Japan rates outperformed with pricing little changed amid the Iran conflict. The cost push shock could further add underlying inflationary pressures while fiscal subsidies and ample oil reserve could cushion the growth impact.
From our multi-asset team perspective, our CIOs lean cautious on credit due to the market’s exposure to spillover effects from private credit risk. Our Fixed Income team believes there may be opportunities for attractive carry in select high yield and securitized credit names.
Broadly speaking, our portfolio managers are cautious about AI-related software risks and their spillover impact on the credit market. Our investors are therefore sensitive toward lower-quality collateralized loan obligations (CLOs) in the US.
Ongoing demand for AI investment exposure and positive fiscal tailwinds inform our bullish stance on the US dollar. However, we acknowledge that a sharp unwind of the AI trade or labor market deterioration are risks to this view. Fiscal concerns in the UK and Japan inform our bearish outlook to sterling and the yen. Across emerging market currencies, we are broadly neutral but lean in on select high-quality Asian names (e.g. South Korean won, offshore Chinese Yuan, Singapore Dollar).
Sources: ~45JPY Trillion from Goldman Sachs Asset Management as of March 5, 2026; 6.7 BPD from Bloomberg as of March 9, 2026; 43% growth from Goldman Sachs Global Banking and Markets. As of October 24, 2025.
Top Questions on our Mind
1. How do commodities intersect with AI, energy, security, and geopolitics?
What We’re Watching: How rising geopolitical risk and AI‑driven energy demand are reinforcing structural tightness across commodities markets, accelerating the shift toward hard assets as a core component of resilience and energy security.
- Energy security is re‑emerging as a dominant macro force: Geopolitical fragmentation and supply chain chokepoints in the Strait of Hormuz have exposed the limits of spare capacity and just‑in‑time supply chains across oil, LNG, fertilizers, and industrial metals. The risk increasingly lies not just in price volatility, but in supply availability during disruption reinforcing the role of commodities as a Bellwether asset, rather than purely a cyclical one.
- AI is a physical demand shock, not a virtual one: Unlike prior technology waves, AI scales through real‑world inputs - power generation, grids, energy transport, and metals. Rapid build‑out of data centers, electrification infrastructure, and defense‑related capacity is driving sustained demand for energy and industrial materials, tightly linking digital growth to commodity intensity across the global economy.
- The “Revenge of the Old Economy” & the “HALO” Trade: Gold’s rally over the past year may represent the latest structural regime shift as markets rotate out of asset-light technology sectors and into asset-heavy sectors. Amid AI- and geopolitically- led market volatility, our investors are evaluating portfolio hedges, including tangible commodities. There is strong demand for Heavy Assets, Low Obsolescence (“HALO”) companies, and commodities such as gold (a hedge against the US dollar), as well as copper (essential for AI-driven power demand).
2. How is AI transforming capital formation in the mega-IPO cycle?
What We’re Watching: How pricing discipline, deal structuring, and index inclusion dynamics determine whether markets can absorb a new generation of mega‑IPOs, particularly in AI, amid elevated volatility and unprecedented capital needs.
- The IPO market is open, but highly selective and only for the right assets: Investors are rewarding transparency, asset quality, and durable cash flows. Capital is available when valuation expectations align with fundamentals. We see a wider range of outcomes for smaller companies attempting to go public.
- Mega‑IPOs (especially in AI) will reshape market dynamics rather than crowd them out: Listings in AI and large platform businesses bring unique challenges around supply absorption, lockups, and aftermarket liquidity. Index inclusion and passive flows may help support trading over time, but thoughtful sequencing, disciplined pricing and partnerships with management are critical to long-term performance.
- AI is changing how and when companies access public markets: Unlike prior tech cycles, leading AI companies may face ongoing, large‑scale capital needs even after listing, alongside rapid competitive shifts. For investors, this elevates the importance of assessing funding durability, cost structures, and governance flexibility, alongside growth potential, when evaluating new public opportunities
3. What is the outlook for Japan’s economy and monetary policy stance?
What We’re Watching: Whether Japan can execute a slow but durable exit from ultra‑easy policy, supported by structural wage growth and corporate resilience, while managing energy‑driven inflation risks, cautious consumers, and an increasingly active fiscal stance.
- A measured path toward policy normalization: The Bank of Japan (BoJ) is moving toward policy normalization, but at a deliberate pace. Policy remains accommodative and we expect gradual, semi‑annual hikes rather than aggressive tightening. The central bank is focused on preserving the wage‑price “virtuous cycle” while avoiding premature tightening in an economy still adjusting after decades of low inflation.
- Japan’s domestic resilience is underappreciated: Structural labor shortages and strong wage growth in decades is supporting real income gains and improving the outlook for consumption. Corporate balance sheets broadly remain flush with cash and companies are largely profitable, allowing firms to absorb higher funding costs. Rising rates should also benefit banks as loan yields adjust faster than deposit rates.
- Fiscal policy is becoming a more important stabilizer: Under Prime Minister Takaichi, fiscal policy has shifted toward a pro-growth framework, emphasizing investment in AI, semiconductors, and energy security rather than austerity. This complements gradual normalization, while preserving flexibility to deploy subsidies if energy price volatility drives headline inflation higher.
- External risks remain the key swing factor: Global conditions can impact the pace of normalization. Energy price shocks, slower global growth, or financial market volatility could slow the BoJ’s path, particularly if they weigh on consumer confidence or financial conditions. While cost push shock can lift underlying inflation.
The Bottom Line
