CEOs are bullish but nervous: David Solomon’s Davos readout on deregulation and ‘shotgun’ policy

Goldman Sachs CEO David Solomon said corporate sentiment ahead of Davos is broadly bullish, citing a stimulative macro setup for 2026 driven by monetary easing and a surge in AI infrastructure investment that could power a record M&A year and an IPO “mega-cycle.” He noted last year’s $5.1 trillion of M&A (a 44% rise from 2024) and said private-equity portfolios are positioned to exit as public markets improve, but warned CEOs are unsettled by a “shotgun approach” to U.S. policy and geopolitical frictions (including tariffs) that could pause capital deployment. Solomon contrasted weak European trend growth (below 1% on ~ $20tn economy) with U.S. ~2% trend growth (~$30tn) and flagged exogenous risks—geopolitics, cyber or idiosyncratic shocks—as the primary threats to the positive 2026 trajectory.

Analysis

Market structure: Deregulation + monetary easing and an AI capex boom create clear winners — AI chip makers (NVDA), semiconductor equipment (LRCX, AMAT), data‑centre REITs (EQIX/QTS) and investment banks (GS/MS) that capture M&A and IPO fees. Europe and policy‑sensitive sectors look relatively disadvantaged: slower trend growth (<1% vs US 2%) implies lower P/E multiple expansion and weaker capital formation; expect pricing power for constrained GPU and wafer‑fab capacity in 2026, pushing upstream equipment pricing 10–30% higher year‑over‑year depending on backlog realization.

Risk assessment: Tail risks are dominated by a geopolitically triggered market shock or regulatory reversal that can erase 15–30% from risk assets in weeks; cyber or tariff escalations are highest probability exogenous events. Immediate (days) volatility will spike on headlines; in the 3–9 month window M&A outcomes and Fed easing cadence matter for flows; structurally (2026+) the US/Europe divergence can persist absent policy reform. Hidden dependencies include PE markups and concentrated GPU supply chains — if PE exits flood IPO supply, multiples can compress sharply.

Trade implications: Favor growth/capex exposures and IB fee plays, but hedge for event risk. Tactical moves: long GS and select AI infra equities via call spreads, buy duration on Fed easing signals, and short selective European financials/large caps that price in slow reform. Use 3–12 month option structures to express directional views while capping premium; size initial entries 1–3% and scale into confirming macro/corporate catalysts.

Contrarian angles: The consensus that 2026 will be an M&A/IPO bonanza may underweight supply (PE exits) and overpaying risk — historical parallels to pre‑2007 fee booms warn of parasite cycles where fees spike then collapse. Europe is cheap but reforms can be front‑loaded if political will coalesces, creating a mean‑reversion trade; conversely, AI capex could produce an oversupply of datacenter capacity by 2027 compressing equipment returns. Always pair upside exposure with 1–2% downside insurance ahead of high‑risk geopolitical windows.

Key Decisions for Investors

• Establish a 3% long position in Goldman Sachs (GS) with a 9–12 month horizon to capture higher M&A/IPO fees; implement a hedge by buying GS 9‑month 10% OTM puts sized 0.5% notional. Scale 50% now and 50% on confirmation of large announced deals (>$5bn) or if IB revenues report +10% QoQ; take profits at +40–60%, stop loss -20%.
• Allocate 3% to AI infrastructure: NVDA 2% and LRCX 1% via 3–6 month call spreads (buy ATM, sell 20% OTM) to limit premium outlay; increase exposure to 5% total if NVDA orders/backlog growth reported >20% QoQ or if inventory days remain <60. Target +50% upside, time stop at -25%.
• Short European financials: establish a 2% short position in EUFN (European financials ETF) or equivalent for 6–12 months to play the US/Europe growth gap; exit or trim if Euro area PMIs >50 for two consecutive months or ECB announces explicit capital‑markets reforms. Stop loss +15% adverse move.
• Position for lower yields: accumulate a 3% long duration position via TLT now as tactical exposure to expected Fed easing, and add another 2% if 10‑year Treasury yield falls below 3.50%. Hedge equity tail risk by buying SPX 3‑month 5% OTM puts sized 1–2% notional ahead of major geopolitical events (next 60 days).
• Options hedge for broad equity downside: purchase SPX 3‑month 5% OTM puts (1–2% notional) within the next 30 days to protect concentrated growth/IB exposures through the Davos/geopolitical calendar; unwind if realized IV compresses >25% or after 6 weeks if no material geopolitical shock.