SYDNEY: Goldman Sachs CEO David Solomon said on Wednesday he was surprised by the “muted” reaction in financial markets to the Middle East conflict and said it may take “several weeks” for investors to more fully digest the impact.
“As I look at the market reaction, I’m actually surprised that the market reaction has been more benign than you might think given the magnitude of this,” Mr Solomon said in a speech at the Business Summit in Sydney.
Solomon said markets tend to react modestly to geopolitical events unless they have a direct impact on economic growth.
“There’s a cumulative effect of everything that’s happening and a more severe reaction. So far we haven’t seen that kind of cumulative effect,” he said. “But there are so many unknowns at this point that it’s very difficult to speculate.”
“It will take a few weeks for the market to really understand the impact of what happened in the short and medium term, but we can’t speculate on how that will play out,” he said.
Oil prices have soared as the escalating conflict heightens supply concerns and further worries investors about inflation.
Global stock indexes fell and the U.S. dollar strengthened as investors sold riskier assets and flocked to traditional safe havens.
But Wall Street’s losses were relatively modest, with the S&P 500 down less than 1% this week after paring early losses on both trading days.
Solomon said a combination of factors, including an easing financial cycle and significantly relaxed regulatory practices, helped keep the U.S. economy on solid footing.
“Let’s put aside what’s going on in the Middle East right now,” he said. “We think we have a confluence of strong macro tailwinds that make the U.S. economic growth trajectory very compelling.” (Reporting by Christine Chen in Sydney; Writing by Renju Jose; Editing by Christian Schmollinger and Kevin Buckland)
