Stocks could have a tough road ahead if the Fed hikes rates: Chart of the Day

Stocks could have a tough road ahead if the Fed hikes rates: Chart of the Day Jake Conley · Breaking Business News Reporter Mon, September 14, 2026 at 5:52 PM GMT+2 4 min read CL=F ^GSPC Oil prices ( BZ=F , CL=F ) are solidly back over the $100 per barrel mark . The August payrolls report showed the US economy added three times as many jobs as expected . Consumer pricing data showed "core" pricing ticking up faster than expected .

In other words, the case has grown increasingly strong for the Federal Reserve to issue its first rate hike in three years on Wednesday, as markets price in roughly a 90% probability of a quarter-point hike. If equity market performance remains true to historical precedent, that could spell an upcoming trough for stocks, Goldman Sachs analysts led by Ben Snider wrote over the weekend. The Federal Reserve issued its last rate hike on July 26, 2023.

· AlphaSpace Looking at history, the benchmark S&P 500 ( ^GSPC ) index has seen an average three-month return of negative 2% at the start of a Fed hiking cycle throughout the past few decades, Goldman noted over the weekend. That's primarily for three reasons. First, economic growth tends to be more important than rate levels for equity performance — if earnings results are strong, stocks tend to accelerate — but a tightening cycle could weigh on that same growth outlook.

Second, the start of a tightening cycle has historically tended to mark the peak of "past high-valuation, high-concentration bull markets," Goldman wrote in a prior note: an apt description of this year's AI-dominated market. Finally, the AI boom has made the current growth cycle "particularly capital intensive," per Goldman Sachs, which has in turn "[increased] the likely sensitivity to changes in the cost of capital. " In other words, the capital intensity of the AI build-out may make this bull market more susceptible to the negative impact of rate hikes than others.

"Today even a modest hiking cycle would likely weigh on stocks because it would be difficult for the market to be confident in advance about the duration and magnitude of tightening," the analysts wrote. US equities typically struggle around the start of Fed tightening cycles, per Goldman Sachs. · Goldman Sachs But zoom out, the analysts said, and the long-term picture remains secure.

Even with the negative returns typically seen in the first three months of a tightening cycle, the S&P 500 has averaged a 12-month return of 9%. Take 1997. The S&P 500 fell 10% over the month following the Fed's 25 basis point hike issued in March of that year.

And yet, the index reached new all-time highs within three months after that one hike-long "cycle. " Part of the equation, the Goldman analysts noted, will be how companies respond to higher interest rates. Companies can maintain their valuations against higher rates "if its risk premium falls or its growth rate rises," per Goldman.

To fully offset the impact of a one percentage-point increase in the cost of capital from today's levels, Snider's team said, a company's expected long-term growth would need to increase by two percentage points. Story Continues One way to do that, the analysts noted, is through capital expenditures and R&D, both hallmarks of the AI capital cycle dominating the market. So far this year, the S&P 500 forward price-to-earnings ratio has declined from 22x at the start of the year to 19x today, per Goldman Sachs.

And yet, the index nonetheless sits within 2% of its record high set in August. All that said, investors may have already accounted for rising rates. The market is already pricing 75 basis points — or three quarter-point hikes' worth — of tightening by the middle of 2027, "lifting the bar for policy to surprise in a hawkish direction.

" With the hikes already priced in, Snider's team argues, the hit to equity performance may not be as dramatic as one might typically expect. Stocks may indeed take a leg down if the Fed kicks off a tightening cycle on Wednesday. But the real driver over the medium-to-long term, Snider's team wrote, will be earnings growth, "the most important driver of stocks.

" "The market is already pricing more than three hikes within the next year, and corporate earnings and balance sheets are both robust," the Goldman analysts wrote. "We expect the bull market to continue. " Jake Conley is a breaking news reporter covering US equities for Yahoo Finance.

Follow him on X at @byjakeconley or email him at jake. conley@yahooinc. com .