Varadhan’s oil call is the piece most worth flagging against our own coverage, since it sits in tension with the escalation we have just reported, including Iran’s reported missile strike on a tanker in the US-backed southern corridor of Hormuz.
His view that oil settles well below 70 dollars a barrel by year end rests on an assumption that a Strait of Hormuz deal is close, an assumption that looks considerably shakier after the latest strike and the IRGC’s declaration that the strait is a theatre of war rather than a shipping route. If Goldman’s base case holds and a deal does eventually land, the drop in energy prices he describes would also be disinflationary and supportive of his call for the Fed to stay on hold rather than hike, feeding into his broader constructive view on front end US yields and equities. But if the standoff hardens further, that whole chain reverses, energy prices firmer for longer, more persistent inflation pressure, and a harder case for a Fed hold. For now this reads as the more optimistic end of the Hormuz outcome spectrum rather than the base case implied by the latest tanker strike.
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Goldman’s Varadhan is betting the Fed holds, oil drops well below 70 dollars, and stocks keep grinding higher into year end.
Summary:
- Goldman Sachs co-head of global banking and markets Ashok Varadhan expects equities to keep grinding higher into year end after a volatile July
- He said unwound AI trade leverage should support a higher quality rally rather than a repeat of last month’s volatility
- expects the Fed to hold rates rather than deliver the hike currently priced in by markets, citing fading tariff inflation and a possible Hormuz deal
- remains broadly constructive on credit despite heavy hyperscaler debt issuance to fund AI investment
- is skeptical yen intervention will work long term, saying real stabilization requires Bank of Japan rate normalization
- single best trade idea is oil settling well below 70 dollars a barrel later in the year, supporting front end US yields
- His overarching advice remains to stay invested, consistent with his view from the fourth quarter of last year
Goldman Sachs co-head of global banking and markets Ashok Varadhan said he expects equity markets to keep grinding higher into year end, arguing that a volatile July, marked by war re-escalation, Fed hike jitters and a sharp unwind in tech momentum, has largely worked through the market and left a cleaner setup going forward. Speaking on a Goldman markets podcast, Varadhan said much of the leverage built up in the AI trade has now been unwound, which he expects to support a higher quality rally rather than a repeat of last month’s volatility.
Varadhan said dispersion between single stock and index volatility is likely to remain elevated given how differently the AI theme affects companies depending on their position in the supply chain, even though he believes the most extreme readings have likely passed. On rates, he pushed back against market pricing for a Fed hike by year end, saying he expects the central bank to hold steady instead, pointing to fading tariff related inflation pressure and the prospect of a Strait of Hormuz deal as reasons price pressures should ease. He added that while AI infrastructure spending can strain resources and stoke inflation concerns in the near term, the completed build out should ultimately prove disinflationary.
On credit, Varadhan said he remains broadly constructive despite heavy new issuance from hyperscalers financing AI investment, noting that any additional risk premium demanded by investors reflects supply rather than concern about the resilience of the underlying economy. On currencies, he said he is skeptical that yen intervention will succeed over the longer run, arguing that genuine stabilization requires the Bank of Japan to normalize interest rates properly rather than relying on intervention.
Asked to package his views into a single trade, Varadhan pointed to energy, saying he expects oil to settle back down well below 70 dollars a barrel later in the year, a call he said makes him constructive on front end US yields and reinforces his broader view that markets can participate in both AI driven productivity gains and a resilient economy. His overarching advice was to stay invested, a repeat of the view he expressed on the same podcast in the fourth quarter of last year. He said the coming jobs report and further inflation readings are the key data points he is watching next.
This article was written by Eamonn Sheridan at investinglive.com.
