Goldman Sachs strategist warns: Earnings temporarily support the stock market, but if US Treasury sell-off accelerates, US stocks may come under pressure

Global bond yields are hovering near multi-decade highs, and the resilience of U.S. equities is facing a test.

Goldman Sachs Chief Global Equity Strategist Peter Oppenheimer has warned that if the bond market sell-off intensifies further—especially if yields rise at a rapid pace—the U.S. stock market could quickly become vulnerable. He stated that what really needs to be watched is whether the bond market will see a more significant and more intense sell-off from current levels. He said: "In that scenario, I believe the equity market will become vulnerable."

He pointed out that corporate earnings have been relatively healthy this year, which has partially absorbed valuation pressure in U.S. equities and provided some buffer against rising bond yields.

At present, the stock market has not been obviously impacted by the ongoing bond market sell-off. However, as global average bond yields remain near multi-decade highs at the end of this turbulent September, the tug-of-war between rising bond yields and corporate earnings growth has become the main focus of the market.

Earnings still provide support, but buffers are not unlimited

Oppenheimer believes that U.S. equity market fundamentals remain fairly positive. After years of profit growth, companies continue to benefit from nominal economic expansion, with both inflation and real output growth driving corporate revenues higher and thus supporting equities.

But this support does have limits. He emphasized that if bond yields rise further, especially if the pace is too rapid, the stock market will still face significant pressure. "What we've found in the past is that the key is not only the absolute level of yields, but also how quickly they adjust and the reasons behind changing yields," he said.

This means that high yields themselves do not necessarily trigger a stock market correction—what is more concerning is a rapid upward move in yields in a short period of time. So long as earnings growth can absorb part of the valuation pressure, equities may retain resilience; but if risk-free rates rise rapidly, the speed of the pressure on valuations will also accelerate.

Market split over how much higher yields could go

Behind the current bond sell-off, there are rising concerns in the market that higher energy prices may drive up inflation and subsequently impact the Federal Reserve's rate path. On Wednesday, U.S. Treasury yields temporarily paused their previous upward trend, as U.S. economic data showed some signs of cooling, but global bond yields overall remain near multi-decade highs.

There are also differing opinions among Wall Street institutions regarding the impact of further yield increases on the stock market. Marina Zavolock of Morgan Stanley believes that even if the U.S. bond market experiences another wave of selling, equities may still maintain a certain degree of resilience.

A team led by Barclays strategist Emmanuel Cau, however, is more cautious. According to reports, the team believes that as higher rates weaken the appeal of the 'There Is No Alternative' (TINA) trade, upward momentum in stocks is fading.

The core contradiction currently facing the market is therefore not simply a battle between 'high yields' and 'high valuations', but whether corporate earnings growth can continue to offset the valuation pressure brought on by rising rates. If yields rise slowly, earnings growth may still buffer equities; but if the bond sell-off accelerates and rates climb rapidly, the pressure on stocks could increase significantly.