-- Rising rates are starting to weigh on US corporate profits and if they stay higher for longer it may upend a historical trend, according to Goldman Sachs Group Inc. strategists.Aging Trees Show a Crisis Looms for the World’s Everything Oil
For decades, falling interest costs and greater leverage have accounted for nearly one-fifth of an overall 8.8 percentage points increase in the return on equity of S&P 500 firms, according to the strategists. US stocks have struggled since the start of August, with the S&P 500 dropping about 6.5% on rising bond yields and subdued economic growth expectations. While the Federal Reserve paused its rate-hike campaign in September, hawkish messages from officials pushed the 10-year Treasury yield above 4.6% — its highest level in nearly 16 years.
Separately, Goldman strategists said US technology stocks may be about to turn a corner after the Nasdaq 100’s biggest monthly decline this year.The S&P 500’s profitability, ex-financials, has continued to decline this year from its peak in the second quarter of 2022, with increased interest expenses being the largest drag on earnings, the analysts wrote. They expect ROE to stabilize in 2024 with a low likelihood of increasing due to subdued economic growth.