The hike case got loud

Oil is back over $100 a barrel, August payrolls came in at three times expectations, and core inflation ticked up faster than forecast. Markets price roughly 90% odds of a quarter-point hike Wednesday.

History says minus 2%

Goldman Sachs analysts led by Ben Snider found the S&P 500 averages a negative 2% return in the three months after a hiking cycle begins, going back decades.

Growth matters more than rates

Strong earnings usually carry stocks higher regardless of rate levels. The problem is that tightening itself dents the growth outlook that equities are leaning on.

Tightening marks the peak

Goldman notes hiking cycles have historically topped out "high-valuation, high-concentration" bull markets. That describes this year's AI-dominated market almost exactly.

“past high-valuation, high-concentration bull markets”

AI build-out raises the stakes

The AI boom made this growth cycle unusually capital intensive, which Goldman says increases sensitivity to the cost of capital. A modest hike bites harder than it otherwise would.

“Today even a modest hiking cycle would likely weigh on stocks”

Companies can grow their way out

A firm holds its valuation if its risk premium falls or growth rises. Offsetting a one-point jump in capital costs takes two points of extra long-term growth, the kind capex and R&D can buy.

Zoom out and the bull holds

Twelve-month returns after hiking cycles start average 9%. Markets already price three hikes by mid-2027, so the hawkish bar is high, and Goldman expects the bull market to continue.

“We expect the bull market to continue.”