Rising rates are a problem for richly-valued equities.

Did you hear? If not, just step outside into a community of market participants and somebody will be shouting it from a rooftop. Roosters perched on rows of Toll Brothers homes which, despite being built-to-order, are nevertheless uninteresting: “The stock-bond correlation turned negative again last month! It’s still negative!” (“Honey, come down off the roof, ok? You’ve got a Zoom meeting in 10 minutes.”)

The financial media, which lives in the spec-built Toll Brothers community down the road (if you have a C-Class Mercedes and you didn’t pick up on the condescending tone from the salesperson at the dealership, you’ll love a Toll Brothers “quick move-in”), can hear all the crowing. And do you know what it sounds like? Clicks, that’s what.

Witness “Goldman Joins Wall Street Peers Flagging Rates Risk for Stocks,” a superfluous filler piece published by the good folks over at Bloomberg on Tuesday. The relevant Goldman note was actually just this week’s “GOAL Kickstart” — it’s a weekly piece that comes out on Mondays. There’s a short editorial and then two dozen pages of charts.

The problem right now for stocks (as it relates to rates) is twofold. First, a rapid, reals-led bond selloff is a kind of worst-case scenario for inflated multiples, which is to say the last thing you want in an equity rally driven entirely by valuation expansion is a rapid rise in reals. Second, the bear steepener is a problem in its current incarnation. In addition to being weird (it’s probably late-cycle), it’s also being driven by policy and fiscal concerns, alongside a higher term premium. That could be ominous.

“Historically, bear steepening episodes have been mostly ‘risk-on’ due to a rebound in growth, but this time a bear steepening might be less supportive for risky assets with central bank hawkish shifts and larger supply in the driver’s seat,” Goldman’s Andrea Ferrario and Christian Mueller-Glissmann wrote, in the note cited by Bloomberg.

“Already low equity risk premia may further limit the ability of equities to digest further increase in rates — the equity beta to 10-year real rates is now close to 20-year lows (excluding 2020),” they added.

Separately (but relatedly), the bank’s Peter Oppenheimer and Sharon Bell underscored the same general points, while once again calling attention to the (now wholly glaring) disparity between multiples and reals.

“While higher bond yields (from a very low base) were previously associated with better growth and stronger equity returns, the more recent sharp rises in yields are becoming a headwind for equities as better growth expectations had already been priced in,” Oppenheimer and Bell said.

Again, it’s pretty hard to ignore the “jaws” illustrated on the right, above.

“[The] headwind from rising yields should not be a surprise given that equity risk premia have fallen sharply back to pre-pandemic levels, providing much less buffer for equities as rates rise,” Oppenheimer and Bell went on. “Some argue this makes sense,” they added, before offering a word of caution: “However, while nominal and real bond yields are back to pre-financial crisis levels, at least in the US, the P/E remains much higher, and earnings growth much lower.”