S&P 500 Goldman says emphatic No, rates are not a risk to equity valuations

Goldman Sachs Chief US Equity Strategist David Kostin said in his weekly note to clients that inflationary concerns were not a risk to equity valuations. “Investors ask whether the level of rates is becoming a threat to equity valuations. Our answer is an emphatic ‘no,’ Kostin said, according to CNBC.

The weekly Goldman Sachs note says rising yields are not at high enough levels to cause concerns.

Goldman notes the S%P 500 is trading at 22 times forward earnings, which is historically high but the S&P 500 dividend yield versus that of the US 10 year shows less valuation risk with valuations around 42% of historical norms. This the note says should lead investors to identify different sectors which will benefit. 

Equity markets should not be worried until the 10 Year yield hits 2.1%. Kostin notes that the rising yields and growth is in keeping with Goldman's S&P 500 target of 4300 for 2021. “Although secular growth stocks may remain the most appealing investments on a long-term horizon, those stocks will underperform more cyclical firms in the short-term if economic acceleration and inflation continue to lift interest rates.”

Market Reaction

US equities are all strong on Monday with Nasdaq up over 2% and Dow and S&P up 2.1% each.