Strong earnings are supporting shares for now, but Goldman Sachs strategist Peter Oppenheimer says a faster rise in Treasury yields could leave equities exposed.
Strong corporate earnings are helping equities hold up for now, but Goldman Sachs strategist Peter Oppenheimer said the market could face a much rougher stretch if bond selling gathers speed. In a Bloomberg Television interview, Oppenheimer said the key question is whether the latest rise in bond yields turns into a sharper, more disruptive move, because that would leave stocks looking more exposed.
He said the support from profits has mattered this year by softening stock valuations, giving investors some cushion even as fixed-income markets have weakened. That dynamic, however, could reverse quickly if Treasury yields climb further at a faster pace, a scenario that would likely pressure share prices and narrow the room for equity multiples to stay elevated. Bloomberg reported that Oppenheimer framed the issue as one of momentum in the bond market rather than the level of yields alone.
The warning fits a broader view inside Goldman Sachs that the bond market has become one of the main risks to further gains in equities. In a separate note, Tony Pasquariello, the bank’s global head of hedge fund coverage in fixed income, currencies and commodities and equities, said the climb in 10-year Treasury yields to the highest level since 2007 could challenge stocks. He also suggested that betting against bonds may be a useful hedge for equity exposure.
Goldman’s strategists have also pointed out in recent months that opportunities can still emerge in pockets of the market even as the macro backdrop remains uneasy. Earlier this year, Oppenheimer and colleagues said technology shares were becoming more attractive as valuations eased relative to the wider market. But for the broader equity rally, the message from Goldman is that the pace of any further bond-market selloff may matter as much as earnings themselves.
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