Interest rates are finally rising, and as we observed this morning, the 10Y – now above 2.60% and the highest since last March…

… is now on the cusp of breaking above the 2.63% level which Jeff Gundlach said last week is where stocks will be negatively impacted.

And while the financial sector is poised to benefit from this increase, although not if the curve flattens and eventually inverts, something which would unleash havoc among the banks, there are many parts of the US economy that will be unequivocally and negatively impacted from the rise in interest rates. Among them are housing, business investment and, of course, consumer spending: with credit card already at record highs, increase in the APR will crush America's purchasing power.

But which one will be hurt the most? That's the question Goldman's economist team set to answer when it asked overnight “which sector is likely to experience the largest drag from higher rates.” Goldman then analyzed the Fed's FRB/US model as well the slowdown in housing activity following the rate spikes in mid-2013 and late-2016, and find that “housing activity is several times more rate-sensitive than business investment and consumer spending.”

Clearly, this is a problem for the US economy, where the bulk of the middle-class wealth is found not in the stock market, but in the biggest investment most Americans will make over their lifetime – their house. And with rates expected to keep rising, it's only going to get worse. 

As Goldman's Daan Struyven writes:

Over the past four months, the 10-year Treasury yield has risen about 50 basis points (bp) to 2.53%. We expect long-term rates to rise by an additional 100bp in the next two years as the Fed continues to tighten policy once-per-quarter and the term premium rises (Exhibit 1).

Well, for the sake of stocks, Goldman's rate forecast better be wrong as it implies a sharp slide across all rate-dependent risk assets. But what about all those other, far more critical for most people, sectors of the economy?