Katie Martin and Robert Armstrong Published October 26 2026. Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter. This article is an on-site version of our Unhedged newsletter.
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Last week did not end on a happy note — oil up, stocks down, even gold taking a hit. Funny how that thing is a haven right up until you want it to be. The good news is that government bonds are turning higher, which should be helpful to the UK on Budget week and also provide a decent hedge.
As Rob wrote last week, winter has arrived in markets. How chilly are you feeling? [email protected] We're risk-on but we have built-in hedges. We don't usually run interviews on a Monday, but we like to keep you on your toes so here is a crisp one to start your week.
On Thursday, I chatted to Alexandra Wilson-Elizondo, global head and co-chief investment officer for multi-asset solutions at Goldman Sachs, based in New York. Here's her thinking on the outlook and how to stay constructive despite all the very well-flagged risks. Her comments have been edited for length.
Unhedged: Let's start with the obvious. How are you thinking about whether we're in an AI bubble? Is this a question you get from clients a lot? Wilson-Elizondo: It's a question that comes up. It's the wrong question.
The speed and the size and the quantum of issuance means there's a pedestrian approach of saying 'this is a bubble'. We're in the stage of this build-out where it's debt funded. But you don't underwrite a narrative in credit.
You do that in equities where you share in the terminal value. But in credit, you underwrite credit quality, cash flow, counterparties. The neoclouds are a rates story.
It's a leverage story and a financing story. The credit default swap market was saying [earlier this month] that it's really a coin flip on a default over the next five years. That's not where we see fundamentals.
The market will go to the most extreme position. The rates market is hurting the most cyclical parts of the marketplace: housing, parts of consumer balance sheets and so on. The consumer — the upper echelon of consumer — is doing really well and spending.
Financial conditions could also pressure that. Unhedged: You still have the same question though: how to hedge against all that? Are you getting that question? Wilson-Elizondo: Of course. We have been trading more rates volatility.
That helps the portfolio. But one of the best hedges is some of the AI names, if you are worried about what AI is going to do to some companies. Unhedged: So the way to hedge AI is more AI? Wilson-Elizondo: In some cases, yes.
It depends what part of AI you are worried about. Unhedged: Can't you also just keep it simple and buy rates? Wilson-Elizondo: We do like the front end of the curve. The market has priced an aggressive hiking cycle from the Fed... we're less hawkish than the market is priced.
There's a lot you can do in the options market. Things have been trading pretty cheap so it can make sense to buy some puts. What we saw [in the AI wobble] was that rates had a defensive quality.
The yen did well. The defensive trades we know came back to the market. Unhedged: How about Asia? China has been performing badly, Korea has been incredibly volatile, Indonesia has had issues.
Wilson-Elizondo: There is interest, especially when you see irrational exuberance. Korea is down 40 per cent from its peak so there's some opportunities there. Indonesia is starting to recover.
Unhedged: There's a lot of talk about the US midterms being a potential AI killer. Does this make sense to you? Wilson-Elizondo: You can see the dynamic on both sides of the aisle. You have to pay attention to state and local legislation...
Source: Financial Times Markets · Summarized by HeadlinesBriefing