Photo: Bloomberg TV
David Kostin, Goldman Sachs’ chief U.S. equity strategist, expects stocks to have another healthy year in 2013.”We forecast S&P 500 will reach 1575 at year-end 2013 based on our new 2014 EPS estimate of $114 and a fair value P/E of 13.9X,” he wrote in a note to clients this morning.
However, Kostin believes this will be a Fed-induced QE-driven rally.
“The FOMC’s open-ended easing program allows investors to look past current stagnant economic growth and focus on corporate fundamentals. So far QE has reduced the equity risk premium but not yet improved growth expectations.”
And he sees no shortage of risks to growth:
Although we forecast a rising stock market in 2013, numerous headwinds remain for equity performance that policy action must overcome: Consensus 2013 EPS estimates remain too high despite sales and EPS revisions that have been consistently negative in 2012; S&P 500 margins have declined for three quarters; US GDP growth continues to stagnate near 2%; China economic growth has been reduced ahead of an important political transition in November; and political and policy uncertainty remains high in Europe along with risk to Euro area growth. The major near-term policy risk relates to possible 1Q 2013 fiscal consolidation of roughly 4% of GDP under a worst case outcome.
Kostin, however, is sticking to his earlier call for the S&P 500 to end 2012 at 1,250, which implies a 14 per cent drop from here. Here’s how he sees the S&P moving through the end of next year.
Photo: Goldman Sachs