Goldman Sachs strategists warn: Earnings are providing temporary support for the stock market, but a faster sell-off in US Treasuries could put pressure on US stocks.

Global bond yields are hovering near multi-decade highs, and the resilience of US stocks is being tested.

Goldman Sachs' chief global equity strategist, Peter Oppenheimer, warned that U.S. stocks could quickly become vulnerable if the bond market sell-off intensifies further, especially if yields rise rapidly. He stated that the real concern is whether the bond market will experience a larger and more severe sell-off from current levels. He said, "In that scenario, I think the stock market will become vulnerable."

He pointed out that corporate earnings this year have been relatively healthy, which has to some extent absorbed the valuation pressure on US stocks and provided a buffer for the stock market to resist rising bond yields.

Currently, the stock market has not been significantly impacted by the continued sell-off in the bond market. However, with global average bond yields still near multi-decade highs as this turbulent September ends, the tug-of-war between rising bond yields and corporate earnings growth is becoming a focus of market attention.

Earnings continue to provide support, but the buffer is not unlimited.

Oppenheimer believes that the earnings fundamentals of the current US stock market remain relatively positive. After several years of profit growth, companies are still benefiting from nominal economic expansion, with inflation and real output growth jointly boosting corporate revenue, providing some support for the stock market.

However, this support is not without limits. He emphasized that if bond yields rise further, especially too quickly, the stock market will still face significant pressure. "We've found in the past that the key lies not only in the absolute level of yields, but also in the speed of the adjustment and the reasons driving yield changes," he said.

This means that high yields themselves do not necessarily trigger a stock market correction; what is more alarming is a rapid rise in yields in the short term. As long as earnings growth can still absorb some of the valuation pressure, the stock market may remain resilient; however, if the risk-free interest rate rises rapidly, the pressure on valuations will also accelerate.

Market divergence focuses on how fast yields can rise.

Behind this round of bond sell-offs, market concerns have intensified that rising energy prices could push up inflation and thus affect the Federal Reserve's interest rate path. On Wednesday, US Treasury yields briefly halted their previous upward momentum as previously released US economic data showed some signs of cooling, but global bond yields remained near multi-decade highs.

Wall Street institutions are divided on the impact of further yield increases on the stock market. Morgan Stanley's Marina Zavolock believes that even with a new round of sell-offs in the US Treasury market, the stock market may still maintain some resilience.

A team led by Barclays strategist Emmanuel Cau was more cautious. They reportedly believe that the upward momentum in the stock market is weakening as rising interest rates diminish the appeal of "no other choice" (TINA) trades.

The core contradiction currently facing the market is not simply a debate between "high yields" and "high valuations," but rather whether corporate profit growth can continue to offset the valuation pressure brought about by rising interest rates. If yields rise slowly, profits may still provide a buffer for the stock market; however, if bond sell-offs accelerate and interest rates climb rapidly, the pressure on the stock market may be significantly amplified.

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