Goldman's Top Strategist Gives 3 Reasons Why The S&P 500 Will Fall To 1,250

The S&P 500 closed at about 1,370 at the end of last week, exceeding David Kostin’s target of 1,250 for the end of 2012. Kostin, chief U.S. equity strategist at Goldman Sachs, told Bloomberg TV that he is sticking by his forecast despite the S&P’s recent run.

Kostin said there were three main reasons for his call:

  1. The U.S. economy is stagnating, growing below trend.
  2. In a weak economic growth environment, markets historically have a flat multiple
  3. 2012 is expected to see earnings growth of only 3 per cent.

Elaborating on these three key points Kostin said at sub-2 per cent, income growth is weak.  Also, earnings and revenue forecasts have been cut across all sectors in the last 30, 60 and 90 days. He also blamed rising oil prices and the lack of money flow into the market.

Kostin attributed the current upbeat investor sentiment to solid macro data in the U.S., especially the employment side, the LTRO program in Europe which pumped €1 trillion into the system, and finally some progress in Greece, i.e. the success of the Greek debt swap deal which should see Athens get its second bailout.

Watch the entire interview with Kostin on Bloomberg TV:

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