Shares of companies loaded with floating-rate debt are feeling the pinch from the climb in an interest rate that serves a benchmark for trillions of dollars in loans and financial products.

The 3-month London interbank overnight rate, or Libor, has risen to 2.3%, outpacing the speed at which the Federal Reserve has raised its benchmark interest rate. The sharp climb in Libor hasn’t changed the bullish outlook for equity analysts at Goldman Sachs, who say strong earnings should ease the burden of managing heftier debt loads, but they said stocks of companies making extensive use of floating rate debt would should see fiercer headwinds in a backdrop of overall downtrend for U.S. equities.

New money market regulations, a deluge of issuance by the Treasury Department and the new U.S. tax law have contributed to what many say will prove a temporary bump in short-term borrowing costs. Short-lived or not, Libor’s rise could push up interest costs for $2.2 trillion worth of adjustable rate corporate loans.

See: Why the Fed is watching a rise in an interest-rate benchmark pegged to trillions

Most constituents of the large-cap heavy S&P 500 SPX, +0.50% have limited exposure to Libor’s rise, with the use of floating-rate debt predominantly seen in small-cap stocks. But there remains a host of large-cap companies that have a significant share of their borrowings linked to adjustable rates, including Campbell Soup Co. CPB, +0.09% and Viacom Inc. VIAB, -3.31%

Nonetheless, stocks with a significant amount of floating rate debt on their books are underperforming their benchmark indexes. As the spread between the fed-funds rate and Libor has widened, S&P 500 firms with more than 5% of debt tied to adjustable rates have fallen behind the S&P 500 by 3.20%, and were down 4% for the year.

LIBOR’s climb has weighed on stock prices

For the overall stock market, the outlook appears more sanguine.

“For U.S. equities in aggregate, rising borrowing costs pose only a modest headwind, and we expect S&P 500 [return on earnings] will nonetheless climb this year to the highest level since 2007,” they said, forecasting the return on earnings for the S&P 500 to rise to 17.6% in 2018.

Expectations for another year of strong earnings has diminished the impact of higher borrowing costs. Net debt before Ebitda (earnings before interest, taxes, depreciation and amortization) for S&P 500 firms has fallen slightly from 1.6 times in mid-2017 to 1.5. On the other hand, the leverage ratio for the median firm has hit 1.7, a record high, reflecting the lopsided balance sheets of American corporations and the cash hoards of the technology and pharmaceuticals industries.

That is not to say concerns over excessive leverage aren’t figuring into the thoughts of investors.

Many have become less forgiving of debt-bloated companies. Stocks with weaker balance sheets in the S&P 500 have lagged behind firms with healthier finances since the beginning of 2017, Goldman noted in the chart below:

Stocks with strong balance sheets are outperforming their peers

“Apart from the dislocation in short-term rates, the macro landscape is growing increasingly unfavorable for highly levered companies. As the cycle matures, borrowing costs should continue to rise and earnings power should soften, exacerbating leverage ratios and weakening both interest coverage and the ability to issue new debt,” the Goldman Sachs strategists said.

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Rising Libor sinks stocks of companies loaded with floating rate debt