Goldman Sachs forecast 2% 10-year yield - says not a problem for equities

Author: Eamonn Sheridan | Category: News

This via a weekend note from GS, I'm still shaking my head. 

The first bit we know already:
  • Our economists expect that rates will continue to rise in coming months. Their forecasts for an 11% pace of real US GDP growth in 2Q and core PCE inflation rising to 2.3% suggest that investors will have to continually grapple with the anxiety about economic overheating and Fed tightening that has gripped markets in recent weeks. They expect the 10-year yield will rise to 1.8% by mid-year and 1.9% by year-end. 
I posted on the GS GDP forecasts last week, and their expectation the 10yr would rise to 2% (next paragraph ... bolding mine):
  • We believe equity valuations should be able to digest 10-year yields of roughly 2% without much difficulty. A 10-year yield of 2% and a constant S&P 500 forward EPS yield of 4.5% (the inverse of a 22x P/E multiple) would reduce the yield gap between stocks and bonds to approximately its 45-year average of 250 bp. 
If GS are right there is no stopping this bull market. 

Remember this?
This via a weekend note from GS, I'm still shaking my head. 
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