Goldman Sachs: Lower Oil Could Set the Stage for an “Everything Rally”

Goldman Sachs sees a potential setup for an “all-assets rally” toward year-end, but the scenario depends on two important developments: the US midterm elections passing without a major disruption, and oil prices falling significantly from elevated levels.

The reason oil matters goes well beyond the energy market. Higher crude prices feed directly into fuel and transportation costs, keeping inflation pressure elevated. At the same time, persistent inflation makes it harder for the Federal Reserve to ease policy and can push investors to price in a higher path for interest rates.

That has been one of the key pressures on markets. When oil rises sharply, inflation expectations can move higher, Treasury yields can come under pressure and the outlook for monetary policy becomes more restrictive. Goldman’s recent discussion highlighted oil prices above $100 a barrel as an important variable for the inflation outlook and the future path of Fed policy.

The reverse could also be true. If crude prices fall meaningfully, some of the inflation pressure could begin to fade. A calmer oil market would give investors more confidence that the recent inflation shock is losing momentum, potentially reducing expectations for additional rate hikes.

That could create a much friendlier backdrop across markets. Lower inflation and a less restrictive rate outlook could support equities by easing valuation pressure, while falling rate expectations could also provide support for bonds. Other major asset classes could benefit as investors become more willing to take risk.

The midterm elections are another part of the picture. Goldman’s Tony Pasquariello has noted that once markets move beyond the midterms, the path toward year-end could become more supportive for risk assets.

The key takeaway is that the “everything rally” is not really about one asset outperforming another. It is about a change in the macro backdrop. If oil prices cool, inflation pressure eases and expectations for further rate hikes fade, the same factors currently weighing on multiple markets could begin working in the opposite direction.

For traders, that makes oil, inflation expectations and Fed policy three closely connected signals to watch as the market heads toward the final months of the year.