Global market strategy amid rising rates and energy prices Report Interpretation

Overview

This global weekly strategy update links the latest equity weakness to rising energy prices, renewed inflation concerns and higher-rate expectations. Its main positive regional view is Germany, where fiscal delivery and a prospective earnings recovery support selective thematic exposure despite energy, China and rate risks.

Core views

Global equities fell during the week, with Europe down 1.7%. Energy was the notable outperformer, gaining 1.7% as Brent climbed 11.7%. Goldman Sachs’ Commodities team raised its 4Q26 TTF gas-price forecast to €70/MWh from €53/MWh, citing delayed normalisation. The report argues that the energy-price move has reinforced inflation concerns and, in turn, raised pressure on markets through higher expected policy and government-bond rates. Goldman Sachs economists now expect a 25bp hike at the September FOMC meeting. Its rates strategists forecast year-end 2026 US Treasury yields of 4.30% for the 2-year and 4.75% for the 10-year. The report’s cross-asset framing is therefore important: higher energy costs can sustain inflation concerns, which can lift yields and challenge equity valuations even as energy-sector performance improves. The report identifies Germany as a relative constructive case. It says the recovery is becoming more visible as fiscal stimulus shifts from promise to delivery: GDP growth has accelerated, manufacturing is recovering, factory orders are improving, and the €500bn investment programme should increasingly support activity through 2027-28. Goldman Sachs notes that consensus expects roughly 17% German EPS growth in 2027, above the STOXX 600, supported by exposure to AI, technology, defence, electrification and industrials. However, the institution favors thematic rather than broad German exposure because energy, China and rate risks remain. Its preferred German themes are Fiscal, Defence, CAPEX and Domestic Recovery. It remains cautious on Autos and Chemicals, where Chinese competition and higher gas prices are identified as pressures. The weekly dashboard also places the market backdrop in a broader earnings and valuation context. Consensus estimates show 2026/2027 EPS growth of 33.9%/15.7% for MSCI AC World, 31.1%/14.9% for the S&P 500 and 17.6%/9.1% for the STOXX 600. The report tracks top-down versus bottom-up earnings expectations, forward P/E valuations, equity risk premia, style and sector performance, fund flows, volatility, skew, dividends and cross-asset correlations rather than presenting a single-security investment case.

Analysis framework

Goldman Sachs combines weekly market and sector returns with macro forecasts, rate expectations, earnings-growth estimates, revisions, forward valuation comparisons, sentiment indicators, fund-flow data and cross-asset correlations. It then applies this top-down market framework to its selective German thematic view.

Methodology notes

• Valuation methodsP/E and PEG Valuation

  Forward P/E valuation comparison

  The report compares 12-month and 24-month forward P/E levels across markets, sectors and styles against history to frame relative equity valuations.

• Quantitative, Factor, and Portfolio Theory

  GS Bull/Bear Market Indicator and Risk Appetite Indicator

  The Bull/Bear indicator averages percentiles of macro and valuation variables, while the Risk Appetite Indicator uses 27 cross-asset pair trades measured against two years of z-scored performance.

• Corporate Fundamentals and Finance

  Top-down versus bottom-up EPS estimate comparison

  The report compares Goldman Sachs macro-led earnings expectations with consensus company-level estimates to assess the earnings outlook.

Asset mapping & comparison

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

• Germany equity themes

  Goldman Sachs is constructive on fiscal, defence, CAPEX and domestic-recovery exposure.

  Strengths

  Visible recovery signals, improving manufacturing and orders, fiscal delivery, and anticipated support from the €500bn investment programme.

  Weaknesses

  Broad exposure remains vulnerable to energy, China and rate risks.

  Comparison

  Consensus German EPS growth of roughly 17% in 2027 is described as well above the STOXX 600.

  Risks

  Higher gas prices, Chinese competition and interest-rate pressure.

• Autos and Chemicals

  Sectors on which Goldman Sachs remains cautious within Germany.

  Weaknesses

  Pressure from Chinese competition and higher gas prices.

  Risks

  Chinese competition and elevated energy costs.

Key data

• Europe weekly equity performance-1.7%Europe declined last week.
• Brent weekly performance+11.7%The increase supported Energy, which returned +1.7%.
• 4Q26 TTF forecast€70/MWhRaised from €53/MWh because normalisation is expected to be delayed.
• Expected September FOMC move25bp hikeGoldman Sachs economists' expectation.
• Year-end 2026 US Treasury yields2-year 4.30%; 10-year 4.75%Goldman Sachs rates-strategy forecasts.
• German 2027 EPS growthroughly 17%Consensus expectation, described as well above the STOXX 600.
• German investment programme€500bnExpected to increasingly support activity through 2027-28.
• MSCI AC World EPS growth33.9% in 2026E; 15.7% in 2027EConsensus estimates.

Impact & implications

The report links the energy shock to inflation and rate risks for global equities, while treating Germany as a selective earnings-and-fiscal-stimulus opportunity. It favors exposure to Fiscal, Defence, CAPEX and Domestic Recovery themes rather than broad German exposure.

Risks

• Higher energy prices may reinforce inflation concerns and place further upward pressure on rates.
• Germany faces ongoing risks from energy costs, China exposure and higher rates.
• Autos and chemicals face pressure from Chinese competition and higher gas prices.

What to watch

• The September FOMC meeting, US import-price data and retail-sales data.
• European labour-market and CPI reports, the Bank of England decision, Euro-area industrial production and inflation details, and Sweden's labour-market report.
• The Bank of Japan policy meeting and Japan's August national new core CPI.
• Mainland China August activity data, Taiwan's CBC meeting, and CPI releases in India and Malaysia.
• Evidence that Germany's fiscal programme, manufacturing recovery and factory orders continue to improve.