Goldman strategist David Kostin has had better years.At the beginning of the year he called for the S&P to hit 1325 by mid-year, and then fall to 1250 by year end.
Since then the S&P has blasted far past estimates, and of course is massively above year-end targets.
So what’s Kostin saying now?
He’s sticking with it.
From his latest weekly:
We based our investment thesis for US stocks at the start of 2012 on three assumptions: (1) stagnating US economy; (2) stagnating P/E multiple; and (3) modest earnings growth.
On each of these points, Kostin’s argument holds.
For example, Kostin expects growth to decelerate again thanks to the return of normal, non-mild weather, the end of an inventory cycle that contributed 2 percentage points to Q$ GDP, higher gasoline prices, and just recent data.
As for PE compression:
Developments YTD that would suggest a contracting P/E multiple include: (1) negative EPS revisions across nearly every sector of the market; (2) lack of significant inflows to domestic equity mutual funds and further inflows into domestic fixed income funds; (3) higher crude oil prices that pressures margins; and (4) personal income growth has remained weak, rising at an annual rate less than 2%. Slow wage growth coupled with a flat savings rate supports our view that GDP growth will be below-trend in 2012.
And as for weak earnings growth, again, Kostin holds to his view:
…we continue to forecast modest earnings growth of 3% in 2012 and 7% in 2013 to $100 and $106, respectively. Consensus bottom-up estimates total $106 and $119 reflecting annual growth of 9% and 13%, respectively. Importantly, analysts have slashed 2012 EPS estimates for most sectors during the past three months. Note that on a trailing four- quarter basis, net margins for the S&P 500 (excluding Financials and Utilities) declined for the first time in 4Q 2011 and on a year/year basis margins fell for all sectors except for Tech (excluding Apple, margins fell for the Tech sector as well).
Meanwhile, we’ll note that another side of Goldman is super-bullish on stocks right now, having called this a generational opportunity to buy stocks.