Goldman Sachs: If the situation eases, the stock market will outperform the broader market, and the US dollar will weaken.

Investing.com - Goldman Sachs emphasized in a report on Friday that if geopolitical tensions ease, the stock market may restore its recent strong performance, while the dollar may weaken.

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Analyst Kamakshya Trivedi told investors that the macro market continues to face the dilemma of “excessive inflation and insufficient growth,” as investors assess the impact of the Iran conflict and how long the energy shock may persist.

Goldman Sachs stated, “Central bank pricing has exceeded reasonable levels for most modal upside estimates,” reflecting market concerns over a potential “energy supply shock on the scale of the largest since the 1970s.”

While the interest rate market has seen the most intense repricing, the bank noted that volatility in the stock, credit, and currency markets is “relatively small,” as investors distinguish between energy-exporting and importing countries.

Goldman Sachs wrote that the key risk lies in whether disruptions in the Strait of Hormuz will persist, forcing the market to “worry about severe downside growth risks.”

Such a scenario “would put greater direct pressure on the stock market and emerging markets… and further strengthen the dollar,” as investors turn to safer assets.

However, the bank emphasized that if tensions ease, the opposite would be true.

“If a quicker easing of tensions can be achieved, in line with recent optimism, then the previous theme of global stocks outperforming and a weaker dollar should resume, and may even be reinforced by recent events,” the bank concluded.

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