Goldman Sachs: S&P 500 May Fall 2% Short-Term If Fed Hikes, But Gains 9% Within 12 Months

According to Goldman Sachs' portfolio strategy team, ahead of the July 14 U.S. CPI release—a key data point before the Federal Reserve's July policy decision—the firm released research on how rate hikes could affect stock performance. CME FedWatch tools show traders now estimate roughly a 50% probability the Fed will hike this month, while Goldman Sachs projects only a 25% chance of a rate increase within the next year.

Goldman Sachs analyzed seven historical Fed rate-hike cycles and found the S&P 500 averaged a 2% loss in the three months following the first rate increase. However, expanding the timeframe to 12 months showed an average gain of 9%, with stock markets rising in all but 2022's case. The research concludes that while Fed hikes may trigger near-term selling pressure, longer-term returns typically remain positive for U.S. equities.