Goldman Sachs: US Stocks May Rally Despite Rate Hikes

According to Goldman Sachs Research, US stocks have historically struggled when the Federal Reserve begins a cycle of hiking rates. However, equities tend to generate gains a year after interest rates start rising.

The S&P 500 has posted an average three-month decline of 2% at the start of seven hiking cycles over recent decades. But looking further out, the index has delivered an average 12-month gain of 9%, with positive returns in every episode except 2022.

Goldman Sachs Research's chief US equity strategist, Ben Snider, writes that much of the increase in rates from a cycle may already be reflected in yields. Interest-rate markets are already pricing multiple rate increases by the middle of 2027, making it less likely that monetary policy will produce a hawkish surprise for markets.

Snider states, 'The medium-term impact of Fed tightening on equities will depend on how tightening affects earnings growth, which is the most important driver of stocks.'