Fed Rate Hike Expectations Send Warning Signal to US Stocks

Goldman Sachs' cross-asset sales head Jonathan Shugar discussed how US stocks are being influenced by Federal Reserve rate hike expectations, equity momentum, and geopolitical risks. The episode of Goldman's trading-floor podcast, 'The Markets,' landed on the eve of a pivotal FOMC meeting, just one week after a hot CPI print.

The market has effectively forced the Fed's hand with 84% odds of a hike priced for the coming week and 50 basis points priced by year-end. Shugar argued that inaction risks losing control of the back end of the curve, which he identifies as the single largest risk on the board.

He also emphasized that equities have done the heavy lifting on earnings growth, with a 30% Q2 S&P earnings growth rate. Shugar expects more near-term speed bumps but predicts an S&P 'probably well over 8,000' within a year.