Goldman’s view puts bank stocks at the centre of the debate over higher-for-longer rates: with the Fed still on a hiking path, unrealised bond losses are keeping investors away despite improving income guidance. If yields stabilise, or the regulatory changes Goldman flags make 2027 buybacks more likely, the gap between earnings and share prices could narrow quickly. Deposits pooling in the largest lenders point to more pressure on regional and smaller bank funding costs. The credit team’s preference for secured, collateral-backed lending over unsecured bonds is a cautious signal for the heavy pipeline of AI-related bond supply.---Earlier:ICYMI: S&P sees global bond issuance growth slowing to 2.7% in 2027, weakest in five years---Goldman says US banks are being sold for what higher rates do to their bond portfolios, not for what those rates are doing to their earnings, and it thinks the gap is the opportunity.Summary:Goldman Sachs says around 80% of early-reporting S&P 500 companies beat Q3 earnings estimates, but market reactions have been muted as higher yields shift the focus to margin durability, earnings quality and 2027 guidance.US banks reported robust fundamentals: net interest income guidance extended into 2027, equity trading surged and credit metrics stayed benign.Bank shares still fell. Goldman says investors are focused on capital pressure from unrealised bond losses, which it sees as largely a timing issue, with regulatory changes possibly supporting buybacks in 2027.Several bank CEOs flagged a once-in-a-generation capital shortage to fund the AI boom, while rejecting third-party agentic AI transacting on client accounts on security grounds.Goldman’s credit team prefers secured, amortising loans against collateral and contracts over unsecured bonds.The top 10 US banks captured around 85% of Q3 deposit growth, with one bank taking around 30%. Consumer activity and credit trends remain broadly healthy.Goldman Sachs says US bank shares have been punished despite strong third-quarter results, arguing that investors are trading on a single idea, that higher rates mean selling financials, while overlooking guidance for rising interest income into 2027, according to a third-quarter earnings review from the firm.Corporate results have been resilient overall. Goldman said roughly 80% of the early-reporting S&P 500 companies beat earnings estimates, but equity market reactions to those beats have been muted. With investors weighing the impact of higher yields, the focus has moved away from headline quarterly beats toward how durable margins are, the quality of earnings and whether forward guidance through 2027 is credible.Banks, typically among the first to report, delivered solid numbers. Goldman said guidance for net interest income, the gap between what banks earn on loans and securities and what they pay on deposits, was extended into 2027 as fixed-rate assets reprice at higher yields. Equity trading revenue surged and credit metrics remained benign.The bank argues that the market’s response reflects the two-sided effect of higher rates. Rising rates lift interest income but also weigh on capital through unrealised losses on bond portfolios, and Goldman believes that capital side is where investor attention is concentrated. It sees the gap between those two effects as the potential opportunity, describing capital pressure as largely a matter of timing and noting that upcoming regulatory changes could support share buybacks in 2027. Most banks that provided guidance expect interest income and net interest margins to keep rising into 2027.AI featured prominently in bank commentary. Several chief executives warned of a once-in-a-generation capital shortage to fund the AI boom, while also rejecting third-party agentic AI, meaning autonomous software agents, carrying out transactions on client accounts because of security concerns, even as their own internal AI tools scaled rapidly. Goldman’s credit team sees a similar divide in AI more broadly, with demand intact but access to funding now separating winners from the rest. The team remains cautious, favouring secured, amortising loans backed by collateral and contracts over unsecured bonds.Concentration in the sector is also rising. Goldman said the 10 largest US banks captured roughly 85% of third-quarter deposit growth, and a single bank took around 30%, leaving little for the more than 4,200 remaining institutions.On consumers, Goldman’s consumer sector analyst Cecile Origenes said pressure at lower income levels has not translated into broad deterioration, and that the more important question as earnings season continues is where consumers are still prepared to spend and which companies can capture that demand without sacrificing margins. This article was written by Eamonn Sheridan at investinglive.com.