Three big themes, Goldman says each positive for risk assets for now

Pretty much all the big market stories of the last couple of months fall into one of three baskets: worries about oil and gas prices linked to the war in the Gulf, worries about higher long-end rates, and worries about the AI trade.

Sentiment on each has swung back and forth over the past few months, pushing markets around as a result, but Goldman Sachs have a note out from late Monday arguing that at the moment there is scope for market sentiment to shift in the more optimistic direction in each area.

That, they say, means while there has already been a sharp bounce back across risk assets in August — MSCI's all country world index is up nearly 3% — they see scope for further gains for risk.

While they are generally moderately optimistic on each of the three, though also see concerns, really Goldman's point is one of market positioning.

"Through July, oil prices spiked above $100 a barrel, the semis and memory complex saw a 20% reduction in value, and US 30-year real yields made clear cycle highs above 3%. This made the market more sensitive to any better news, much as pricing and positioning made the market more vulnerable to disappointing news in late June."

And they do see some better news ahead.

Concerning energy: "While we take no view on the trajectory of the Iran war, there appears to be little appetite on either side for a major escalation, which should keep energy prices bounded"

On the AI front: "The message from the earnings season so far suggests that the AI spending boom looks to be continuing."

"At any rate, August has kicked off with cleaner positioning and considerably cheaper valuations."

As for rates, they are their biggest worry, but they expect the Fed to remain on hold due to improvements in core inflation.

That means Wednesday's U.S. CPI data will be important. If it is, the next time to watch is for when market sentiment swings too far the other way on these three axes, and it's time for a pullback.