MW Here's why Goldman still sees 10% upside to the S&P 500 even with bond yields rising

By Jules Rimmer

Despite rising bond yields, Goldman Sachs is sticking to its 6500 target for the S&P 500 SPX 12 months out.

Recent tremors in the U.S. Treasury market caused yields on 10-year bonds BX:TMUBMUSD10Y to jump from 4% in the last week to April to the present level of 4.43%. Concerns about the inflationary impact of tariffs and rising term premia (whereby investors demand higher returns for longer-maturity debt) were responsible for the move and Goldman Sachs strategists led by David Kostin analyzed the impact of this on the S&P in a note late Friday assessing risks to equities from higher bond yields.

Goldman is forecasting U.S. 10-year yields BX:TMUBMUSD10Y around 4.5% at year-end and a marginal increment to 4.55% in 2026. They maintain that the most important aspects of changes in interest rates for stocks are the drivers and the speed of the adjustment, rather than the absolute rate itself.

Equities don't mind yields increasing if that's because of rising growth expectations, but they are more sensitive if inflation or fiscal worries are the cause, said Kostin and his team.

Equities are also to cope better if yields rise gradually. If yields rise by two standard deviations in a month, then this is more likely to cause a correction, they added.

Goldman noted that since the tariff dispute began in earnest on April 2nd, clients are much more focused on the relationship between rising yields and stock market returns even if, 'there is no clear relationship" between them.

Kostin and his team forecast the S&P 500 12-month forward price-earnings multiple, currently trading close to fair value according to their model, will remain essentially unchanged over the next year, partly because its constituents generally carry fixed-rate debt with longer maturities.

Small-cap stocks, however, carry more floating-rate debt with shorter maturities and are more vulnerable to bond market volatility. Based on this outlook Goldman reiterated its call for investors to emphasize companies with strong balance sheets in their portfolios.

-Jules Rimmer

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June 02, 2025 05:15 ET (09:15 GMT)

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