Goldman Sachs US Weekly Kickstart: What the Fed Policy Outlook Means for Equities
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Key Views
Earnings growth remains the primary equity driver. However, if the Fed hikes, stocks face short-term pressure for three reasons: (1) rate hikes drag on growth; (2) the AI boom makes this cycle capital-intensive, amplifying sensitivity to cost-of-capital shifts; (3) equities historically struggle early in hiking cycles. The S&P 500 averaged a -2% return three months after the start of the past seven hiking cycles.
Conversely, a dovish Fed pivot could trigger a bullish relief rally.
Outlook
Rate volatility poses downside risk to valuations. GS macro models suggest that if Treasury volatility reverts to 2022–2023 levels, the S&P 500 P/E would decline roughly 6% (approximately 1 turn). Hyperscaler capex has reached 100% of operating cash flow, with net debt at $239 billion, up approximately 190% year-over-year. AI infrastructure stocks represent 42% of S&P 500 market cap, 38% of 2026E EPS, and 50% of EPS growth.
Recommended Securities
No specific securities are recommended. GS forecasts 2026E S&P 500 EPS of $340, a 2026 year-end target of 8,000, and a 12-month target of 8,300.
Key exhibits
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