Goldman Sachs Group Inc. analysts say it’s “too early” to price in a dovish turn in Federal Reserve policy as the economic outlook isn’t bad enough yet, and rates markets remain too volatile. 

Wide fluctuations in rates have meant that expectations for higher return on equities over relatively safer assets have probably been lowered, strategists including Cecilia Mariotti wrote in a research note Monday, while adding that the company maintains an underweight on stocks.

“With gasoline prices on the rise and until a broader set of macro data suggest more material weakness in the economy, we would generally lean against markets’ dovish repricing of the Fed,” the strategists wrote.

Speculation Fed policy will turn friendlier toward equities has seen the S&P 500 Index eke out gains from time to time over the past 12 months, but all those rallies have been sold into with the gauge making new lows every time. The US central bank looks on track to deliver its fourth straight 75 basis-point hike at the November meeting.

The U.S. equity benchmark is only a few points away from closing at its lowest since November 2020 for the second time in less than two weeks. The gauge has already tumbled 24 per cent this year.

The tightening of financial conditions, a potential escalation of geopolitical risks and current mix of growth and inflation have kept the risk of declines higher for equities, the Goldman strategists said.

They warned last month that a peak in U.S. two-year yields -- which will signal a turning point in the Fed’s hawkishness -- remains a way off and an analysis of past episodes suggests it’s best to stay defensive.

Treasury two-year yields climbed as much as four basis points Tuesday to 4.35 per cent, the highest level since 2007, amid concern US inflation data this week will add to the reasons for the Fed to keep raising interest rates.

Shares tied to renewable energy and Democrat policies have recently been positively correlated with prediction market odds of a Democratic sweep, they said.