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Goldman Lowers Its 2010 And 2011 S&P Forecasts By 50 Points On Footsteps Of Friday's GDP Reduction, Quotes Churchill
On Friday, following Goldman's downward GDP revision, we speculated "Look for ... the 2011 S&P consensus to decline accordingly." Turns out we are right much faster than anticipated, and not surprisingly the first bank to lower its S&P forecast is none other than Goldman. The firm has decided to boost its 2010 EPS estimate from $81 to $83, but lower it 2011 projection from $93 to $89. And the temporary bullish revision higher for 2010 action is to be ignored: as David Kostin says "We have reduced our S&P 500 price target by 50 points to 1200. The new target reflects a 7% expected return over the five months until year’s end. Our 12-month target equals 1250, roughly 11% above the current level...At the end of May – just eight weeks ago – we raised our 2011 EPS estimate to $93 from $90. It was a badly timed decision in retrospect. The economic landscape has changed significantly during the last two months. The macroeconomic data that seemed to indicate improvement in April and May deteriorated sharply in June and early July. Cutting our 2011 EPS estimate to $89 represents a reversal for us and reflects the more challenging economic environment we now face compared with the backdrop just a few months ago. At this time we are reminded of Winston Churchill’s famous response when asked why he changed his mind, “When the facts change, I change my opinion. What do you do, sir?"" As a reminder the firm's old 2010 and 12 month estimates were 1,250 and 1,300 respectively. The attached chart shows the revised Goldman estimates, which are basically a broad reduction in the curve by 50 points lower.
More from Goldman:
- Raising our 2010 earnings estimate to $81 from $78. For the second time in two months we are boosting our 2010 operating EPS estimates for the S&P 500. Profit margins for the S&P 500 (excluding Financials and Utilities) reached 8.0% for the four quarters ended in 2Q 2010, fully 96% of its previous cycle high and 290 bp above the low of 5.9% reached in the recent downturn. The primary drivers of our $3 per share increase in 2010 EPS estimates include Industrials ($1) and Information Technology ($1).
- Cutting our 2011 earnings estimate to $89 from $93. Our US Economics team recently lowered its annual average GDP growth forecast for 2011 to 1.9% from its previous estimate of 2.4%. US GDP growth is a key input into our sales and margin forecasts. Cutting our 2011 EPS estimate to $89 represents a reversal for us because, at the end of May, we raised our 2011 EPS estimate to $93 from $90. It was a badly timed decision in retrospect. The economic landscape has eroded significantly during the last two months. A combination of reduced earnings from Energy (-$3), Health Care (-$1) and Financials (-$1) partially offset by increased profits from Information Technology (+$1) explain the EPS cut.
- Reducing our year-end 2010 target for the S&P 500 to 1200, 7% above current levels. We place a greater emphasis on the results of our Dividend Discount Model (DDM) compared with the other valuation approaches. Our DDM model is highly sensitive to the cost of equity and the long-term rate of inflation. A 10 bp change in either input adjusts the forecast 2010 year-end fair value of the S&P 500 by approximately 50 points, or almost 4%.
We believe the second part of our forecast, namely other banks dropping their own GDP estiamtes, will also commence to be validated shortly.
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Looks like GS really wants the QE2 to happen this week :)
Looks more to me like they are trying to get QE2 fully priced in - so they can be positioned to "sell the fact". Morover - its quite likely Bennie will merely hint at QE and not actually do anything - so setting folks up for a big disappointment. Hyperinflation will have to wait a few more months.
Tyler, If you really want to get a image of the stockmarket, you should make a shart overall of the pinksheets. Those are only traded mostly by the retail investors and these are C R A S H I N G.
when I make a Shart - the last thing I want to do is tell the world about it on my blog. Instead, I'd suggest we skip the sharting (and the bathroom) and perhaps make charts instead.
Please, let us return our attention to "The Recovery."
That made me laugh.
This market is shart enough.
More GS BS, Bitchez!
I thought Keynes said that. "When the facts change, I change my mind. What do you do, sir?" Reply to a criticism during the "Great Depression" of having changed his position on monetary policy, as quoted in Lost Prophets: An Insider's History of the Modern Economists(1994) by Alfred L. Malabre, p. 220 http://en.wikiquote.org/wiki/John_Maynard_Keynes
yeah old Winston lived in simpler times.
The issue is - Facts are changing every 5 milliseconds - what is the frequency at which you change your mind?
If you change your mind ( like GS and their Euro forecasts) - at the same frequency as the Facts - maybe a few milliseconds lagged. then they are pretty much useless.
My thoughts exactly. Wikiquote gives it to Keynes.
Keynes changed his mind when the facts changed, Keynesians however - not so much...
Soooooo, best case scenario QE2 and SPX puts in an outside linebacker's seprated right shoulder?
Needs not only QE2..........but EPS (eyeballed) 10-20% *above* an SPX overlay and at historic highs to boot?
Not sure there's enough Acid in the world for me to see this scenario, you dirty smelly commy hippy BITCHEZ
How in God's name are we expected to believe forecasts from those doing God's work when they now admit to the Financial Crisis Inquiry Committee that their derivative revenues are some 35% as opposed to the less than 10% that they, God's annointed. originally stated?
And these are folks who claim to be the World's Greatest Risk Managers, who can't even admittedly track their own P&L?(Where's the fucking revenue, Martha?) Either that or its all Bullshit to begin with.
Bullshit.
Hey they are businessmen. Why would they waste their prcious resources to educate the great unwashed masses? Does any oyher business do that?
Ivory soap?
It is "amazing" how accurate they were at forecasting s&p levels while being half a trillion, HALF A TRILLION !!! short in their equity inflows forecast
Does that mean their target is 800??
Discussion: Is QE2 coming tomorrow or not?
I've come to the conclusion that QE2 has already started, and is the covert buying of equities by the Fed using proxies. The bizarre behavior of the markets, eg Friday after NFP, suggests there is a powerful underlying bid in the markets which doesn't correlate with the economic data. Trouble is, it is getting blatant and people are becoming suspicious. Therefore, the Fed is going to announce something minor, which should not cause a massive bounce, but will and this will be the smokescreen behind which they can continue the real stimulus of buying equities. Of course the MSM will make sure they help them with the charade.
I might be the most optimistic bear out there, and I agree with you on both points. Greenspans comments suggests they've been ramping all along. But I don't think QE2 is coming tomorrow, and if it does, they admit the economy is going to the shitter and the market will either melt up to 1200 or tank.
You really expect a clear and honest outcome? Mor likely it will be a tease. Typical Fed social engineering language - carefully worded for best effect ( to help their buddies - heheheh) - after having tested market(sheeple)psychologty with carefully planted articles in WSJ and FT.
TThen we also have Rubin ( who?) and some guy calling himself Mohammed - sayin the Fed should NOT do QE.
perfect!!!! hahahahahahahaha!!!!!
The Fed is like Nurse Rtchet ( remember her?).
You do not let her dominate you. You smile - like Nicolson - and then you do what you need to do.
Everyone needs to see " One Flew Over the Cuckoos nest" again. Because if they are honest they will recognize themselves as on of the inmates.
OK - so each inmate has some little trick - hides a little candy where Nurse Ratchet canyt find it - stuff like that. But is basically brutalized and does not even remember what it is to be a free human being.
Dont forget the Chief. MMMM AHHHH Juicyfruit
I very much enjoyed this 'ol article published from the Further reading section of FT Alphaville today: http://pragcap.com/quantitative-easing-the-greatest-monetary-non-event?
The core is rotten. Nothing but total anihilation is in the future.
Wow, Thats bad news. Dow Futes up 48. I love bad news.
We're going to climb from here to 1200 SPX by January..??
Goldman's gonna have to buy a major piece of the market to support this.
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Nothing new. US fraud, banks fraud, Greek fraud, Spain fraud. Let's print a bit more and forget about it. Just the new normal routine.
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Turns out we are right much 70-640 exam faster than anticipated, and not surprisingly the first bank to lower its S&P forecast 70-649 exam is none other than Goldman. The firm has decided to boost its 2010 EPS estimate from $81 to $83, but lower it 2011 projection from $93 to $89. 70-642 exam And the temporary bullish revision higher for 2010 action is to be ignored:
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