Goldman Sachs CEO Solomon: The market's mild reaction to Iran is surprising, and it may take a few weeks to truly digest it

# Zhao Ying

Source: Wall Street CN

Solomon stated that it will take the market several more weeks to fully digest the impact of this conflict. All ongoing developments will have a cumulative effect and may lead to a stronger reaction. U.S. backing for shipping security in the Strait of Hormuz is one of the key factors currently supporting market sentiment.

Goldman Sachs CEO Solomon said financial markets have reacted surprisingly calmly to the war in the Middle East. He found this unexpected, but warned that it will take weeks for the market to fully price in the conflict’s impact.

According to Bloomberg, speaking at the Australian Financial Review Business Summit in Sydney on Wednesday, Solomon said there are still too many unknowns. Investors are assessing whether the conflict will become a prolonged war and whether it will start to hit consumption. U.S. commitments to secure shipping in the Strait of Hormuz have stabilized market sentiment to some extent.

Meanwhile, the shockwaves from the war with Iran continue to spread. Israel has launched new airstrikes on Tehran, while Iran has fired missiles at Qatar, Bahrain, and Oman. Qatar stated that the targets are not limited to military facilities. On inflation expectations, rising oil prices have reignited fears of resurgent inflation, and traders are scaling back their bets on Federal Reserve rate cuts.

According to Xinhua News Agency and CNN reports on the 3rd, since the U.S. and Israel launched military operations against Iran, U.S. Special Envoy Witkof, who has been handling U.S.-Iran negotiations, has had no further diplomatic contact with the Iranian side.

### It will take weeks for the market to fully digest the conflict

“I’ve seen the market reaction, and I’m actually surprised,” Solomon said. “The reaction has been fairly muted.”

He noted that with so many unknown variables in the current situation, it is difficult to make predictions at this stage. However, he added that the surge in the VIX index and other volatility gauges was not unexpected.

“It will take the market several more weeks to truly digest the impact of this conflict,” he said. “Everything that is happening will have a cumulative effect and could lead to a stronger response. So far, we have not seen that cumulative effect.”

Inflationary pressures from higher oil prices have forced the market to reprice the Federal Reserve’s policy path. The risk of an inflation rebound from the Iran war is threatening the global economy.

Solomon said U.S. backing for shipping security in the Strait of Hormuz is one of the key factors supporting sentiment for now, but whether this can persist will be tested by developments in the coming weeks.

Despite rising geopolitical risks, Solomon remains optimistic about the medium-term outlook for the U.S. economy. He pointed out that the start of an easing monetary cycle and a significant loosening of the regulatory environment have together provided solid support for the U.S. economy.

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