Photo: Bloomberg TV
Goldman Sachs chief U.S. equity strategist David Kostin was on Bloomberg TV this morning talking stocks.He called the recent deterioration in earnings “a very important issue,” saying, “if you actually drill down as to what’s happening domestically, [the negative earnings revisions are] a concern for us.”
Kostin said that “we are at a peak level of margins,” and that he thought technology stocks would benefit from this environment:
Oil [prices coming down] ought to have been a factor that would help margins, but what’s happening now is that we are at a peak level of margins. We have peaked here for the last 15 months at just about 9 per cent, and that’s likely, in my view, to be stable for the next year and a half. So, you’re not getting that big margin expansion which has been driving the earnings for the last couple of years. That’s really been a concern.
I think you’re looking at technology as an important part of the portfolio. That is how corporations are leveraging their modest revenue increases to basically get an increase in earnings, because there is not a lot of margin expansion.
Kostin told Bloomberg that the macro backdrop, flat valuation multiples, and earnings revisions are all combining to create a “very modest outlook” for equities.
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