The practical read for traders is that the pace of the bond move is a live risk variable, not just the level. A further sharp jump in the 10-year yield of the kind Goldman associates with equity stress would be the clearest warning sign, so daily Treasury moves deserve as much attention as the Fed calendar. Rate-sensitive pockets such as housebuilders and long-duration growth stocks would be the first to react to such a move. Financials sit on the other side of that trade.
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Goldman’s message is that stocks tend to wobble when the Fed starts hiking and recover within a year, but how fast long-dated yields rise matters as much as where they end up.
Summary:
- Goldman Sachs Research says the S&P 500 has averaged a 2% decline over three months at the start of seven Fed hiking cycles, but a 9% gain over 12 months, with positive returns in every episode except 2022.
- Long-term yields matter most for stocks. The 10-year Treasury yield is about 5%, the highest since 2007, and roughly 75% of the S&P 500’s present value comes from cash flows 10 or more years away.
- Speed is a risk factor. Stocks have usually risen alongside rising rates unless the pace was more than two standard deviations above normal, which Goldman puts at roughly 50 basis points in a month or 30 basis points in two weeks.
- The S&P 500 forward P/E has fallen from 22x to 19x this year, but the gap between its earnings yield and the real 10-year yield, a proxy for the equity risk premium, has held near 270 basis points for two years.
- Sensitivity varies widely. Long-duration growth stocks and housebuilders are vulnerable and financials tend to benefit, though no sector has reliably led or lagged after a first hike.
- Large US companies look largely insulated in the near term because most of their debt is fixed-rate and long-dated, while smaller companies are more exposed.
US stocks have historically struggled when the Federal Reserve begins a hiking cycle, but they have tended to be higher a year later, according to Goldman Sachs Research. In a report published on September 15, chief US equity strategist Ben Snider found that the S&P 500 averaged a 2% decline over the first three months of seven hiking cycles in recent decades, then an average gain of 9% over 12 months, with positive returns in every episode except 2022. The Fed has now started such a cycle, lifting its target range by a quarter point to 3.75%-4.00% in mid-September, its first increase since 2023. This guide explains what sits behind the pattern and what makes the current backdrop different. It is educational and not investment advice.
The pattern: a wobble, then a recovery
The two averages describe different time horizons. In the short run, the start of tightening has tended to unsettle stocks. Over a year, the picture has usually improved. Seven cycles is a small sample, and 2022 shows that the rebound is not guaranteed, so the numbers are best read as a historical tendency and not a forecast.
Snider’s own framing is that the medium-term effect depends on what tightening does to earnings growth, which he calls the most important driver of stocks. Goldman also notes that rate markets already price multiple hikes through the middle of 2027, which makes a hawkish surprise from the Fed less likely.
Why long-term yields matter more than the policy rate
The 10-year Treasury yield has risen to about 5%, the highest since 2007. Goldman said August core inflation came in above consensus, and its rate strategists linked the rise in long-term yields to higher oil prices, a repricing of the Fed’s path, strong growth and investment in artificial intelligence.
Stocks respond most to long-term yields because of how they are valued. A share is worth the present value of the profits it is expected to earn in future, and higher yields shrink that present value, especially for profits far in the distance. Goldman estimates that about 75% of the S&P 500’s present value comes from cash flows 10 or more years out, which is why index returns are most closely tied to changes in long-term yields and less to short-term rates.
Speed matters as much as the level
Goldman’s research suggests that how fast yields rise can matter more than how high they go. In recent decades, stocks have usually delivered positive returns alongside rising interest rates, unless the pace of the increase was more than two standard deviations above normal. A standard deviation is a measure of how unusual a move is. At current levels, that threshold equates to a rise in the 10-year yield of roughly 50 basis points over a month or 30 basis points over two weeks. Snider said the speed of the moves in recent weeks helps explain why stocks have struggled to absorb them.
What higher yields have done to valuations
The S&P 500’s forward price-to-earnings ratio has dropped from 22x at the start of 2026 to 19x. Goldman attributes part of that to uncertainty about AI returns and the staying power of recent earnings growth, and part to higher rates. The picture looks steadier against bonds. The S&P 500’s earnings yield, which is earnings divided by price and so the inverse of the P/E ratio, is 5.2%, against a real 10-year Treasury yield of 2.6% after inflation. The gap of about 270 basis points is a simple proxy for the equity risk premium, the extra return investors demand for owning stocks, and Snider notes it has been fairly steady over two years outside brief selloffs.
Who feels rising yields most
Sensitivity to rates varies widely. Goldman says long-duration stocks, meaning fast-growing companies with low current profits whose value rests on distant cash flows, are particularly vulnerable. Financial companies tend to benefit, because their earnings and share prices often rise with interest rates. AI stocks, like the broader technology sector, have shown a modest negative correlation with real yields. Housebuilders are among the most rate-sensitive parts of the market, having moved in lockstep with bond yields and lagged the equal-weighted S&P 500 by 16 percentage points since June.
After an initial hike, energy and technology have posted the strongest average returns over the next three months and healthcare the weakest. Goldman is clear that there is no consistent sector pattern, so past leadership should not be treated as a rule.
Are companies prepared for higher borrowing costs?
Goldman sees limited near-term risk for large companies. Most S&P 500 debt carries fixed rates and long maturities, and interest expense remains small relative to strong profits. Smaller companies generally have weaker balance sheets and more floating-rate debt, which leaves them more exposed. Companies can also offset the valuation drag. Goldman calculates that a 1 percentage point rise in the cost of equity requires a 2 point rise in expected long-term growth to hold a valuation steady, which is why capital spending, research and development, mergers and spinoffs matter.
How to read this, and what would change the picture
The history is a guide, not a rule, and this cycle starts from an unusual position, with the 10-year yield at its highest level since 2007 after a rapid rise. That leaves the speed of the bond market as the variable to watch. Strong earnings and a gradual drift in yields would fit the pattern of a wobble followed by a recovery. Another sharp jump in long-dated yields, or earnings that disappoint, would argue against leaning on the historical average.
The reason yields rise also matters. Our earlier explainer on the neutral rate looked at why economists are lifting their estimates of where rates settle. If yields rise because markets are raising that estimate on the back of stronger growth, the message is different from a move driven by inflation fears or worries about government debt.
Goldman’s note was published the day before the Fed’s decision, so its market figures are as of September 15 and may have changed. The signposts are the 10-year Treasury yield, US inflation data, corporate earnings, and the Fed’s next decisions.
This article was written by Eamonn Sheridan at investinglive.com.