Stocks may plunge 25 per cent if 10-yr yield hits 4.5 per cent, says Goldman

NEW YORK: If the 10-year US Treasury yield hits 4.5 per cent by year-end, the economy would probably muddle through — stocks, not so much, according to Goldman Sachs Group Inc. Goldman’s base-case scenario calls for a 10-year yield of 3.25 per cent by the end of 2018, though a “stress test” out to 4.5 per cent indicates such a move would cause stocks to tumble, economist Daan Struyven wrote in a note Saturday. He also said the economy would probably suffer a sharp slowdown but not a recession.

“A rise in rates to 4.5 per cent by year-end would cause a 20 per cent to 25 per cent decline in equity prices,” the note said.

While a recent drop in stocks may have been fueled by concerns tied to the 10-year yield approaching 3 per cent, many strategists have said they felt equities could continue to rise until reaching 3.5 per cent or 4 per cent.


A 20 per cent to 25 per cent drop in stocks, as measured from the S&P 500’s January 26 peak close of 2,872.87, would take the gauge to a range of 2,155-2,298. It closed on Friday at 2,747.30 after dropping as low as 2,581 on February 8 at the apex of the recent volatility-fueled meltdown.