Goldman: Oil supply disruption could drag S&P 500 earnings

10/03/2026 04:31 AST

An extended period of higher oil prices could be the biggest threat to earnings of US equities this year, Goldman Sachs said, warning that every one percentage point drop in US economic growth could reduce S&P 500 earnings by as much as 4 percent.

Oil prices on Monday surged to more than $119 a barrel, hitting levels not seen since mid-2022, as a widening US-Zionist war with Iran cut supplies. Goldman warned of "a more meaningful downside risk" to US equities from a prolonged period of severe oil disruption, even though the direct impact of modestly higher oil prices on S&P 500 earnings should be relatively muted.

A sustained increase in (oil) uncertainty would also threaten equity valuations, corporate confidence, and the nascent rebound in industrial activity," Goldman said in a note. Historically, the impact of geopolitical risk shocks on equity prices has typically been short-lived, the brokerage said, adding recent S&P 500 price action has resembled the equity market's pattern during past shocks.

The S&P 500 index is down more than 2 percent since the start of the conflict. According to Goldman, during seven spikes in the geopolitical risk index since 1950, the S&P 500 fell by an average of 4 percent during the first week. Apart from the trajectory of oil prices, S&P 500 earnings are dependent on AI investments and returns, Goldman said.

Goldman projected that AI investments and AI cloud services accounted for roughly 25 percent of S&P 500 earnings-per-share (EPS) growth in 2025 and will account for roughly 40 percent of growth in 2026. "AI will eventually also impact broad S&P 500 earnings via enhanced productivity, but we do not see evidence of a significant impact yet," Goldman added.

Separately, Barclays said the US Federal Reserve has been inclined to look past oil-price-induced inflation, with focus largely being on core inflation measures. However, if oil prices remain elevated for longer, worries are likely to emerge about upside risks to inflation and inflation expectations, which could lead the Fed to delay further rate cuts, Barclays added.

Reuters