As the Fed prepares for a potential rate hike, Goldman Sachs analysts suggest that while the S&P 500 may face short-term pressure, robust corporate earnings and pre-priced expectations support a continued long-term bull market.
The S&P 500 historically averages -2% in the first three months of a Fed hiking cycle, but long-term returns remain positive, and the market has already priced in rate hikes.
Brent crude oil prices are mentioned as being solidly back over $100 per barrel, but no direct impact from the Fed rate hike is discussed.
WTI crude oil prices are mentioned alongside Brent as being over $100, with no direct link to the rate hike narrative.
The Federal Reserve is widely expected to initiate its first rate hike in three years this Wednesday, with markets pricing in a 90% probability of a quarter-point increase. Goldman Sachs analysts warn that while historical data suggests a potential 2% dip in the S&P 500 over the first three months of a tightening cycle, long-term returns remain positive as investors have already largely priced in the policy shift.
Goldman Sachs notes that the current AI-dominated growth cycle is particularly capital-intensive, which increases the market's sensitivity to changes in the cost of capital compared to previous cycles.