STOCKS | Goldman Sachs: Earnings Growth May Remain the Main Driver of U.S. Stocks

Goldman Sachs analysts said that even if the Federal Reserve maintains a more hawkish stance that continues to pose risks to equities, earnings growth may still be the primary driver of the U.S. stock market. According to Jin10, Goldman Sachs expects the Fed to keep interest rates unchanged this year, but it put the probability of a rate hike at 25%. Goldman Sachs said a resumption of Fed rate hikes could affect equities in three ways. First, higher rates could weaken the economic growth outlook, and history shows that economic growth typically matters more for stock performance than interest rates themselves. Second, the current AI-led investment cycle is unusually capital-intensive, making companies more sensitive to higher financing costs. Third, past Fed tightening cycles have often coincided with periods of weak stock returns. The analysts added that regardless of whether the Fed raises rates, uncertainty around the policy path could increase the risk of interest-rate volatility, which would also act as a headwind for equities.