Strong US Economic Outlook Buffers Stocks Against Rising Yields –Goldman

• A strong economic outlook is helping U.S. stocks weather a rise in Treasury yields, though that could change if factors such as tighter monetary policy drive yields higher or if they move up too fast, Goldman Sachs strategists said.
• The S&P 500 and 10-year Treasury yield had been negatively correlated - meaning they have moved in opposite directions - since long-term yields began rising last July, Goldman equity strategists led by David Kostin said in their latest weekly kickstart note.
• The S&P 500 sold off sharply over that period as yields marched to a 16-year high in October, making stocks relatively less attractive. Equities staged a swift rebound when yields, which move inversely to bond prices, tumbled in the final months of the year.
• In 2024, however, stocks have hit record highs even as the 10-year yield has risen about 30 basis points to 4.2%. One reason for stocks' resilience is the improving economic outlook, Goldman's strategists said.
• Returns have been substantially stronger when economic growth expectations are improving rather than weakening, regardless of whether the yield curve steepened or flattened, the strategists said.
• "As investors worry less about the potential for Fed tightening, growth expectations should become a more important driver of yields, contributing to a less negative correlation between stocks and yields in 2024," they wrote.
• In a separate note, Goldman's economists raised their fourth-quarter economic growth estimate to 2.4% from 2.1%.

(Source: Reuters)