Goldman analysts say earnings growth is likely to remain the main driver of US
equities even as a more hawkish Fed raises downside risk. Goldman expects the
Fed to keep rates on hold this year but assigns a 25% probability of a rate
hike. A Fed resumption of hikes would affect equities via three channels: higher
rates weakening the growth outlook — and historical growth has mattered more
for equity performance than rates themselves; the current AI-led investment
cycle is unusually capital‑intensive, making firms more sensitive to higher
financing costs; and past tightening cycles have coincided with weak equity
returns. Goldman adds: "Whether or not the Fed hikes, uncertainty about the
Fed's policy path will raise rate volatility risk and constitute a headwind for
equities."
