Goldman Sachs: The Markets
2026-05-04 · Hosted by — · Goldman Sachs
Executive Summary
Anshul Sabah, Goldman’s global co-head of fixed income, currency and commodities, lays out a measured but constructive view post the most recent FOMC meeting. The Fed delivered a “hawkish tilt” with four dissents — three for the Fed to be more nuanced/balanced rather than pre-committing to a cut. With Kevin Warsh likely to take over, expect a less dovish Fed than under Powell, with closer Fed-Treasury balance sheet coordination over a multi-year horizon. Markets are pricing no Fed move through mid-2027 — a bimodal distribution. April’s strong rally takes Goldman’s tactical view from a 9/10 back to 7/10 on equities — wanting to ride the AI wave but waiting for better entry points. Tech earnings broadly impressed: hyperscalers’ AI capex isn’t growing as feared, but token demand has “exploded” — every LLM “times out now,” indicating massive utilization. Goldman favors energy (3/10), defense (2/10), and remains 0/10 on fixed income.
Key Stories & Changes
1. FOMC: Hawkish Tilt with Four Dissents
One dissent for a cut at this meeting
Three dissents for the Fed to be more nuanced/balanced — not pre-committing to a cut as next move
Reflects: stronger labor data than projected, US consumer in better shape, and Iran war as inflationary supply shock
ECB pricing in 3 to 3.5 hikes for the year — more energy-sensitive given import dependence
Labor economists on FOMC remained consistent (next move likely a cut)
Beth Hammack, Lori Logan, and Neel Kashkari more balanced
2. Warsh Takeover Expected
Powell ended meeting saying “you won’t see me later” — confirming Warsh confirmation expected
Warsh wants to factor balance sheet impact when measuring policy
Slow-moving — likely years of study before changes
Warsh viewed as less dovish than Powell intermediate term
No Fed move expected next 3-6 months
Market pricing essentially no hike or cut through middle of 2027
3. Multi-Factor Market Disentangling from Macro
Pre-GFC and through 2010s: highly leveraged private balance sheets, Fed-driven everything
Today: post-pandemic global fiscal expansion has actually de-levered private side balance sheets
Credit disentangling from macro because debt service is manageable in 2-4% inflation regime
Equities disentangling because emerging technologies (AI) can move the needle while demographics (shrinking labor force) drive demand for productivity tools
4. Sovereign Credit Risk Building
US public-side balance sheet has become more leveraged
Term premium higher than prevailing 15 years
Near-term US credibility intact, but next downturn raises questions
Japan’s higher debt-to-GDP serves as warning case — markets reacted “violently” to fiscal expansion attempts there
AI productivity boom could move debt-to-GDP the other way if it materializes
5. Big Tech Earnings — AI Capex Question
Market liked that hyperscalers weren’t investing “a truckload more” in AI capex near-term
Demand for tokens has “exploded” — every LLM times out now
US industry now measuring tools in human-equivalent labor cost terms — much bigger transformation framing
World models year-marked for later 2026 will further explode token usage
Hyperscalers + LLM providers are the primary beneficiaries
6. Goldman Tactical Stance
Equity tactical view: 7/10 (was 9/10 at recent peak)
Last visit: 7/10 with intent to take it up if valuations got attractive — they did, took to 9, never got to 10
Now back to 7/10; want to ride the wave, waiting for better entry points
Treats AI as “generational” thing to be invested in, not a trade
Energy: 3/10 (rotated from excess tech allocation)
Defense: 2/10 (geopolitics + AI tailwinds)
Bonds: 0/10 (yields elevated but no growth trajectory; market should reward growth)
Trends Identified
1. Fed-Treasury Coordination as New Paradigm
Warsh’s view that Fed and Treasury should explicitly factor each other’s actions when managing the balance sheet represents a meaningful shift from the post-GFC era of “independent” Fed action. The market should expect more deliberate joint management of the long-end of the curve over the next several years, even if changes are gradual. This affects how investors should think about term premium and the long-end specifically.
2. Token Demand as Real-Time AI ROI Signal
Sabah’s observation that “every LLM times out now” is a powerful real-world signal that AI capex is being absorbed by genuine utilization — not just speculative build-out. The framing of measuring AI tools against human labor cost equivalents represents a meaningful conceptual shift that justifies continued capex even if traditional ROI metrics lag.
3. Credit and Equity De-Coupling from Macro
The de-leveraging of private side balance sheets (driven by global fiscal expansion) plus emerging AI productivity opportunities have allowed both credit and equities to “disentangle” from traditional macro-rate sensitivity. This explains the market’s ability to perform with oil at $100 and inflation sticky — capital structures can absorb costs that would have been crisis-level a decade ago.
4. Higher Term Premium as Structural
Bond yields are elevated and term premium is at multi-year highs, reflecting both Fed independence questions and US fiscal trajectory concerns. This won’t reverse near-term and creates a structural headwind for rate-sensitive assets while supporting the relative case for equities (especially growth/tech). —-
Sentiment Analysis
Overall Market Sentiment: Constructive with Discipline
Goldman is bullish on AI long-term but tactically pulling back after the April rally; willing to wait for better entries.
Risk Factors Highlighted
Iran War Persistence: Inflationary supply shock; Fed has no good policy response.
US Sovereign Debt Trajectory: Public balance sheet leverage rising; next downturn raises ability-to-expand questions.
Term Premium Elevation: Multi-year high creates rate-sensitive asset headwinds.
Discretionary Spending Air Pocket: May/June data critical — June is travel season with airfares up 70%.
Fed-Treasury Coordination Independence Risk: Closer collaboration may blur historical lines.
Hyperscaler Capex Sustainability: Even with token demand explosion, eventual ROI realization timing uncertain.
Demographics-Driven Labor Shrinkage: Boomers retiring + no immigration creates productivity dependency on AI.
Japan Bond Market as Warning: Markets “violently” rejecting Japan’s fiscal expansion attempts.
This episode was covered in today’s The Market Signal — 2026-05-04, a cross-source synthesis of multiple podcast reports.