Oil Bearishness at 10-Year High

Why bonds haven't been an effective hedge .keep-white { color:#ffffff !important; } .keep-black { color:#000000 !important; } .gsFooterGrey * { color:#000000 !important; } ul.gsFlushList li { text-indent:-1em !important; margin:0 0 0 25px !important; } table { border-collapse:collapse; border-spacing:0; } img { height:auto !important; } .gsContentWidth { width:640px !important; } Briefings Newsletter ( ) Briefings Newsletter ( ) The key insights ( ) today: ▪ Two-thirds of institutional investors expect oil prices to fall, according to a poll of Goldman Sachs clients. ▪ Spain’s economy is forecasted to grow 2.1% in 2026 despite being exposed to high energy costs. ▪ As companies increase spending on AI, the outlook for returns remains uncertain. ▪ Bonds have been rising and falling alongside stocks in the US, but this correlation is unlikely to persist. ▪ Credit investors are increasingly focused on how big tech companies are funding their AI infrastructure and how they plan to make money from it, according to Goldman Sachs Asset Management. ▪ Briefings Brainteaser: Which of these economies is projected to be among the five largest in the world by 2050? Want to sign up and stay connected? Click here ( ).

Marquee Poll: Investors Most Bearish on Oil in a Decade A record two-thirds of institutional investors expect oil prices to fall despite continued disruption to the flow of oil from the Middle East, according to a survey of Goldman Sachs clients. The 839 investors polled between June 1-3 were the most bearish on oil in the 10-year history of the survey. Oil prices have risen since the outbreak of conflict in the Middle East disrupted traffic through the Strait of Hormuz.

A resolution to the tensions would likely reopen the Strait, bringing prices down. Respondents also ranked oil among their favorite assets to short sell. Developed market government bonds were the top choice for short positions for 22% of participants, narrowly ahead of crude oil, which was chosen by 21%.

Brent oil, the international benchmark, was trading around $95 per barrel on Thursday, up from $61 at the end of last year. Read more of our insights on energy ( ). Why Spain's Economy Is Growing Three Times Faster Than the Euro Area ( ) Spain's GDP is expected to grow by 2.1% ( ) in 2026, three times the rate forecast for the wider euro area, according to Goldman Sachs Research.

The forecast is supported by steady job growth, a strong fiscal position, and "structural resilience" amid the global energy shock, according to senior economist Filippo Taddei. ( ) Several factors are driving Spain's outperformance. Unemployment has fallen to its lowest level since 2008, while productivity growth leads the EU's four biggest economies. Employment gains are increasingly concentrated in higher-value-added sectors—professional services, finance, and information and communications technology—where jobs have risen more than 20% since 2019, double the pace seen in France or Italy.

Spain's openness to large-scale net migration has also bolstered growth, although it puts pressure on the housing market. On the fiscal front, Spain has spent more than its European peers to cushion households and businesses from soaring energy costs, yet its broader fiscal position remains sound. By deprioritizing defense spending, the government has preserved bond market credibility, and Spain is the only top four EU economy expected to lower its debt-to-GDP ratio over the next three years.

Spanish sovereign spreads have remained comparatively tight. At the same time, there are some key risks to Spain’s economic growth. Rising energy costs could deter air travel and squeeze tourism, which accounts for 12.6% of GDP, according to estimates from the National Statistical Institute.

Taddei finds that every 10% reduction in tourist arrivals by air could lower GDP by roughly 0.3%. Spain's fragile minority coalition government also poses political uncertainty ahead of the 2027 general election. A Skeptic's Take on the AI Investment Boom ( ) James Covello on Goldman Sachs Exchanges James Covello, head of global equity research, says he is as skeptical about the economics of artificial intelligence (AI) as he was two years ago, even with consumer adoption exceeding his expectations.

Covello notes that hyperscalers’ capital expenditures (capex) have continued to climb despite weak stock performance. “A lot of companies are losing more money today implementing this technology than they were two years ago,” Covello tells Goldman Sachs’ George Lee and Allison Nathan on Goldman Sachs Exchanges ( ) . He also flags a wide gap between C-suite enthusiasm and line-worker experience, with third-party surveys consistently showing productivity gains falling short of executive expectations. Looking ahead, Covello says he now favors hyperscaler equities over semiconductor stocks, reversing his stance from two years ago.

He outlines three scenarios ( ) for the next phase of the cycle, and he sees hyperscalers outperforming in two of them. Find more of our insights on AI ( ) . Will Bonds Become a Better Hedge?

Investors often view bonds as a portfolio diversifier and a hedge to their equity holdings. But recently, they have not been effective ( ) in that role, says William Marshall, head of US Rates Strategy in Goldman Sachs Research. US stocks and bonds fell together in March and recently have risen together.

In fact, the correlation between them has climbed to the highest level since the late 1990s. ( ) This is largely due to the supply shocks resulting from the Iran conflict, Marshall says. While growth and inflation generally rise (or fall) together, supply constraints drive up inflation and drive down growth. Lower growth is bad for stocks, while higher inflation is a headwind for bonds.

Marshall says the correlation between stocks and bonds is likely to fall again. “If we see Iran-related supply issues resolve, then bonds can return to their more normal relationship to stocks—and become a more useful part of multi-asset portfolios,” Marshall says. In case you missed it: Read our article on why stock markets are increasingly vulnerable to rising bond yields ( ) . How Are Tech Companies Funding AI?

The mix of funding sources being used by the largest technology companies as they race to build AI infrastructure is becoming a key focus for credit investors, according to a Market Monitor publication ( ) from Goldman Sachs Asset Management. Market consensus expects that these companies will spend almost $2.5 trillion over the next three years, which is equivalent to 90% of their operating cash flow. That figure has been revised up repeatedly in recent months. ( ) Goldman Sachs Asset Management expects most of the AI-related capital expenditures to come from big technology companies’ own cash flow.

Company management may also reduce share purchases and manage their other expenses to help fund the spending, the publication points out. AI providers are turning to a range of markets to fund their remaining spending needs, including investment-grade data center bond issuance, where debt is tied to physical data centers. They are also raising money in a variety of currencies: So far this year, the biggest AI providers have issued $110 billion of debt denominated in US dollars and $50 billion of debt in other currencies.

Another critical question for investors is how the biggest technology companies turn capex into cash flow. Consensus estimates expect around 55% of 2024-2027 capex by these companies to result in incremental revenue in 2028. “This highlights the importance of active credit selection among the cohort, particularly as the trajectory of capex and monetization paths create uncertainty,” the publication concludes. In case you missed it: Read our article ( ) on the assumptions that could swing the projected cost of building AI infrastructure by hundreds of billions of dollars.

Briefings Brainteaser: Mid-Century Movers Which of these economies is expected to be among the five largest in the world by 2050, according to Goldman Sachs Research? A) Korea B) Indonesia C) Brazil D) Saudi Arabia Check the answer here. ( ) Goldman Sachs in the News By clicking on these links, you will be redirected to external websites that Goldman Sachs does not own or operate. Goldman Sachs is not responsible for the products, services, or content provided on those sites.

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