Rate Hike Jitters: Goldman Sachs Reveals Why U.S. Equities May Bounce Back

Goldman Sachs analysts have been studying the impact of Federal Reserve rate hikes on U.S. equities, and their findings suggest that while a hike may lead to short-term losses, it is unlikely to be a long-term drag.

In fact, after seven past rate hike cycles, the S&P 500 index fell by an average of about 2% in the three months following the first increase, but rose by an average of 9% over the subsequent 12 months.

The forward P/E ratio of the S&P 500 has already fallen from 22x to 19x this year, indicating that some impact of rising rates has been priced in. However, Goldman Sachs notes that long-bond yields are a more pressing concern than short-term interest rates.

Ben Snider, U.S. chief equity strategist at Goldman Sachs, emphasizes that the speed and magnitude of rate increases matter more than their level. Rapidly rising bond yields can create market stress, particularly if they increase by 50 basis points in one month or 30 basis points in two weeks.