Goldman Sachs sees near-term risk for stocks as Fed rate rises loom

The S&P 500 could face near-term pressure if the Federal Reserve begins raising interest rates, although Goldman Sachs expects the broader bull market to continue.

Goldman’s historical analysis found the benchmark index had averaged a 2 per cent decline in the three months after the start of a rate-hiking cycle. Over 12 months, however, the index had recorded an average gain of 9 per cent.

Markets were pricing roughly a 90 per cent probability of a quarter-point rate increase. Goldman analysts led by Ben Snider said the impact of further tightening could be limited because markets had already priced about 75 basis points of rate rises by the middle of 2027.

The firm said rate sensitivity could be heightened by economic growth concerns, elevated valuations, market concentration and the capital-intensive nature of the artificial intelligence investment cycle. It cited 1997 as an example, when the S&P 500 fell 10 per cent in the month after a 25-basis-point increase before reaching a new high within three months.

Goldman said the S&P 500’s forward price-to-earnings ratio had fallen from 22 times to 19 times while the index remained within 2 per cent of its record high. The firm said earnings growth would remain the key medium- to long-term driver of share prices and expected the bull market to continue, citing robust corporate earnings and balance sheets.