Easing Middle East tensions support a recovery in risk appetite, and global equities continue to rise

Overview

This edition of Global Weekly Kickstart focuses on the rally in global equities amid continued easing in Middle East tensions, as well as changes in AI investment, the capital expenditure cycle, risk appetite, fund flows and cross-asset pricing. The report also provides 3-month, 6-month and 12-month forecasts for global GDP, major equity indices, interest rates, foreign exchange and commodities, and reviews regional markets, sectors, styles, valuations, earnings revisions and fund flows.

Core views

The core view is that the market is being supported in the short term by easing geopolitical tensions, a recovery in risk appetite and strong fund flows; in the medium term, however, it is entering what Goldman Sachs calls the post-modern cycle, in which the drivers of global returns shift from low inflation, low rates, globalization and valuation expansion to higher macro volatility, higher real rates, state intervention, regionalization, rising capital expenditure and EPS growth. The AI revolution, energy security, geopolitics and supply-chain resilience are jointly driving a capex supercycle, which is raising capital intensity and the cost base while also widening the dispersion between sectors and stocks, creating more alpha opportunities for active managers.

Analysis framework

The report uses a top-down global strategy framework, combining macro growth forecasts, index targets, cross-asset forecasts, risk sentiment indicators, sector and regional performance, earnings revisions, valuation percentiles, style performance and fund flow data to assess near-term momentum and medium-term structural changes in global equity markets.

Methodology notes

• Macro cycle frameworkPost Modern Cycle

  Post-modern cycle

  This framework argues that the market environment is shifting from disinflation, deregulation, lower rates and globalization toward higher macro volatility, higher real rates, stronger government intervention and regionalization, so equity returns are more likely to depend on EPS growth rather than valuation expansion.

• Sentiment and risk indicatorsGS Risk Appetite Indicator

  Risk appetite indicator

  The report says this indicator is based on 27 cross-asset pairs trades and measured as a z-score relative to the past two years of performance, used to track changes in market risk appetite.

• Cycle risk indicatorsGS Bull/Bear Market Indicator

  Bull/Bear market indicator

  The report converts variables such as the Shiller PE, unemployment rate, yield curve, private-sector financial balance, ISM and core inflation into percentiles, and provides a composite bull/bear indicator percentile.

• Earnings and valuationtop-down versus consensus bottom-up estimates

  Top-down versus consensus earnings comparison

  The report compares Goldman Sachs' top-down EPS growth estimates with the market's bottom-up consensus estimates, and evaluates market support using earnings revisions and 12-month forward P/E multiples.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Global equities

  Core covered asset

  Strengths

  Global equities rose 1.2% last week, risk appetite improved, and inflows into equity funds were strong.

  Weaknesses

  Valuation expansion may be constrained by higher real rates and higher macro volatility.

  Comparison

  Japan and Asia-Pacific ex-Japan outperformed the global market as a whole, while energy was a notable drag.

  Risks

  Renewed geopolitical tensions, earnings misses, rising rates and valuation compression.

• Technology and AI-related stocks

  Structural beneficiary

  Strengths

  AI-driven momentum continues to support the technology sector, which the report says rose 4.3%.

  Weaknesses

  High valuations may increase sensitivity to earnings delivery and returns on capital expenditure.

  Comparison

  Technology outperformed energy significantly this week.

  Risks

  AI capital expenditure fails to translate into earnings growth, regulatory or supply-chain constraints, valuation resets.

• Energy and oil & gas

  A sector influenced by geopolitics and oil prices

  Strengths

  Energy security and geopolitics remain important drivers of higher public spending and capital expenditure.

  Weaknesses

  Brent fell about 8%, and the energy sector declined 6.3% for the week.

  Comparison

  Energy significantly underperformed the broader MSCI AC World market.

  Risks

  Progress in US-Iran negotiations, oil price volatility, slower demand and policy intervention.

• Cyclical stocks

  Beneficiary of risk appetite recovery

  Strengths

  The report says cyclical stocks outperformed defensive stocks as risk appetite improved.

  Weaknesses

  More sensitive to growth expectations, rates and the earnings cycle.

  Comparison

  Near-term performance was better than defensive stocks.

  Risks

  Weaker macro data, higher rates or a reversal in risk appetite.

• Gold

  Commodity asset in the cross-asset forecast

  Strengths

  Goldman Sachs' 12-month forecast is USD 5,115/oz, implying 23.2% upside from current levels.

  Weaknesses

  Gold may be pressured if real rates rise or the dollar strengthens.

  Comparison

  Among the major commodities in the report, gold has higher 12-month upside than Brent and copper.

  Risks

  Real rates, the dollar, central bank demand and changes in risk appetite.

Key data

• Weekly global equity performance+1.2%The report says global equities rose 1.2% last week.
• Weekly performance of Japan and Asia-Pacific ex-JapanJapan+4.6%, Asia-Pacific ex-Japan+4.1%Both led the major global regions.
• Performance of technology and energy sectorsTechnology+4.3%, Energy-6.3%Technology was supported by AI momentum, while energy was weighed down by the Brent decline.
• Brent crude changeApproximately -8%The report says Brent fell about 8% as the United States and Iran entered a longer negotiation period.
• S&P 500 forecastCurrent 7501, 3 months 7600, 6 months 8000, 12 months 8300This implies 10.7% upside to the 12-month target.
• STOXX Europe 600 forecastCurrent 636, 3 months 640, 6 months 645, 12 months 660This implies 3.8% upside to the 12-month target.
• MSCI Asia-Pacific Ex-Japan forecastCurrent 918, 3 months 980, 6 months 1030, 12 months 1080This implies 17.7% upside to the 12-month target.
• Topix forecastCurrent 4045, 3 months 4100, 6 months 4200, 12 months 4400This implies 8.8% upside to the 12-month target.
• US 10-year yield forecastCurrent 4.5%, 12 months 4.3%The table shows a 12-month change of -14bp.
• Brent crude forecastCurrent USD 80.6/barrel, 12 months USD 75/barrelThis implies -6.9% downside over 12 months.
• Gold forecastCurrent USD 4151/oz, 12 months USD 5115/ozThis implies 23.2% upside over 12 months.
• GS Bull/Bear Market Indicator68th percentileAmong the components, the Shiller PE is 40.5, which is in the 98th percentile.
• Global GDP growth forecast2025 2.8%, 2026 2.4%From the report's GDP growth forecast table.
• China GDP growth forecast2025 5.0%, 2026 4.7%From the report's GDP growth forecast table.
• US GDP growth forecast2025 2.1%, 2026 2.1%From the report's GDP growth forecast table.

Impact & implications

The implication for asset allocation is that global equities remain supported in the near term by risk appetite, fund flows and the AI theme, but the quality of future market returns will depend more on earnings delivery and capital expenditure efficiency. Technology, capital goods, real assets and areas that benefit from rising investment may receive structural support; energy prices are likely to remain highly sensitive in the near term to geopolitical negotiations and supply-demand expectations. Higher real rates and rising government borrowing mean that valuation expansion is limited, and investors need to pay closer attention to earnings revisions, cash flow, sector dispersion and changes in cross-asset correlations.

Risks

• If tensions in the Middle East re-escalate, the current recovery in risk appetite could reverse.
• Higher real rates and rising government borrowing could cap valuation expansion.
• If AI capital expenditure does not translate into earnings growth, technology stocks could face valuation corrections.
• Volatility in Brent and energy prices could affect the energy sector, inflation expectations and cross-asset risk appetite.
• If global earnings revisions deteriorate, the investment case for relying on EPS growth in equities would weaken.
• If passive fund inflows, which are now at elevated levels, slow or reverse, market technical support could weaken.

What to watch

• The US PCE inflation report.
• Speeches by Fed officials, including Governor Waller and the activities of Presidents Williams, Goolsbee and Kashkari.
• Flash PMIs for the euro area, Germany, France and the UK, as well as euro area consumer confidence.
• Japan's June BOJ MPM Summary of Opinions and the June Tokyo core CPI.
• South Korea's 20-day exports, Taiwan industrial production, Malaysia and Singapore CPI, and the Bank of Thailand meeting.
• Progress in US-Iran negotiations and its impact on Brent and the energy sector.
• Global equity fund flows, especially whether passive inflows continue.
• 2026 EPS revisions, earnings sentiment and changes in regional/sector valuation percentiles.