Wall Street keeps sanding down its worry by the close, but Solomon says the “cumulative effect” can take weeks — and markets won’t warn you first
Brendon Thorne/Bloomberg via Getty Images
Goldman CEO David Solomon just issued a rare complaint from Wall Street: There isn’t enough fear. He said he was “actually surprised” that the market’s reaction to what’s happening in the Middle East has been “more benign” than expected — and warned that the harsher “cumulative effect” can take “a couple of weeks” before investors price the crisis like they really mean it.
That’s a worrying signal from a man whose job description includes translating uncertainty into spreads.
As a result of the U.S. and Israel’s actions in the Middle East, oil has spiked, global stock indexes have slumped, and the dollar has strengthened as money backs away from risk. And yet, on the part of the scoreboard investors stare at all day, the damage has looked weirdly containable; the S&P 500 was down less than 1% for the week after two sessions of late-day damage control.
Monday’s first post-strike session ended with the Dow down 0.15% and the S&P 500 up 0.04%, a close that read like the market trying to keep its appointment calendar intact. Tuesday got closer to honest — the Dow fell 403 points, and the S&P dropped 0.94%, after the S&P had been down more than 2% earlier and lost all of its 2026 gains — but even then, the big indexes finished well off their lows.
And the market’s fear gauge, the VIX, has been telling a complicated story. It closed at 23.57 on Tuesday — its highest close since Nov. 20 — and hit 28.15 intraday. But by Wednesday morning, it was already backing off again, down 1.03 points to 22.51, as traders tried on the idea that quiet diplomacy (or at least quiet-ish oil) might be possible.
Cash has become king. Stocks, bonds, and even gold have been sold off together — the sort of correlation snap that makes every “balanced portfolio” brochure look like historical fiction. “Oil, and the dollar are the only two things that people want to own right now,” Michael Arone at State Street $STT said Tuesday per Reuters, as global money market funds took in $47.9 billion, the biggest inflow since Feb. 17.
Solomon is warning that markets can hold their breath longer than people expect — right up until they can’t.
“There’s a cumulative effect of everything that’s happening and a much harsher reaction. Up to this point, we haven’t seen that cumulative effect,” he said. Then, he said the part traders will likely hate most, because it implies patience: “I think it’s gonna take a couple of weeks for markets to really digest the implications.”
The Goldman CEO also tried the most Wall Street pivot imaginable: putting the war aside and talking macro. “Let us put aside what’s going on in the Middle East at the moment,” he said, framing the macro backdrop as supportive — an easing cycle, looser regulation, the U.S. economy in “solid shape” — before conceding the catch: “There is definitely a reasonable probability this year that the U.S. economy runs a little bit hot,” he said, with inflation potentially “slightly higher than the consensus expectation.”
He flagged another late-cycle problem, too: “Lending standards come down because there’s a competition to deploy capital,” which becomes a problem once the slowdown shows up and the loans start telling the truth.
The market’s simple working theory still looks like this: The war is horrible, but the trade is temporary. The problem with that theory is that it expires the very minute that oil turns into an inflation story that messes with rate cuts and consumption — and that’s when “benign” turns into a new range.
Join 500,000+ readers who start their day with Quartz.
By subscribing, you agree to our Terms of Service and Privacy Policy.
