Goldman: "0% Upside For S&P 500 To Year End"

Tyler Durden's picture

Across the five valuation methodologies that Goldman's David Kostin uses to consider the S&P 500's richness, the current price (around 1600) represents the average. While the Fed Model (bond vs stock value) is the one significant 'framework' suggesting upside potential but as Kostin notes, it is bonds that are more mispriced than stocks and the gap could close from bond side (significantly reducing the upside potential of this model). His macro-valuation framework, as well as the ROE vs P/B relationship and the Discounted Dividend Model all suggest year-end 2013 fair value at around the current price (i.e. 0% upside). And remember, as we noted recently, this 'expectation' still relies on the H2 2013 rebound in GDP and implicitly EPS (+28% in Q4 2013!) that is so hoped for.


Via David Kostin,

S&P 500 surged 2% this week and has now rallied 14% YTD to 1614. P/E multiple expansion explains the majority of the market’s rise as EPS revisions have been negative. Most investors have lagged the index and have turned their attention to identifying tactical opportunities.


Investors have been frustrated as they seek alpha opportunities within a beta market.


S&P 500 now trades near fair value based on a variety of approaches. Our macro valuation model, the ROE vs. price/book relationship, and our DDM all suggest year-end 2013 fair value of roughly 1625 (see Exhibit 1). The Fed model points to a large gap between bond and stock values that could close from either side. We believe bonds are more mispriced than stocks and recent P/E expansion may show investor preference for equities.


The bulk of earnings season is now behind us, with 85% of S&P 500 firms having released 1Q results. Earnings growth was just 3%, and five of  the ten S&P 500 sectors posted year/year declines in EPS. Consensus sales and earnings revisions since the start of the year have been negative for both 2013 and 2014. Our top-down EPS forecast remains at $108 for 2013 and $116 for 2014 while consensus forecasts $110 and $123.


Many equity investors are skeptical US GDP growth can reaccelerate during the next year to a roughly 3% pace. Recent US economic data has been disappointing as seen in negative US-MAP scores. The ISM fell to 50.7 and today’s better-than-expected payrolls report included only 165K new jobs.

S&P 500 is at 'fair-value' (and rich against macro and earnings reality)...


and revisions have been downright horrible for a year now (as equity performance has ignored that reality)...


You just need to believe... in consensus expectations of 28% growth in EPS in Q4 EPS!!


even as top line growth remains benign...


but of course - the only thing that matters is whether your central bank is printing money (coincidence that the best 2 performing equity markets year to date are US and Japan?)


Charts: Goldman Sachs

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LawsofPhysics's picture

Unless you are in on the "skim" and have inside information, you will continue to "beat expectations" all the way down to fucking zero.  Get away from paper and paper promises as fast as you can.

flacon's picture

Here's a pretty interesting analysis of the situation vis-a-vis Japan and the American bond market:



OtterWood Observations on Japan, May 2013



resurger's picture

monetizing GDP is good , believe in Miracles

suteibu's picture

Is this a prediction or a promise?

LetThemEatRand's picture

They do run the place so they probably know what's coming next.  Then again, if Goldman is telling the muppets that there is a 0% chance of upside, it seems like a 90% probability that Ben will print the market up quite a bit more before he lets it crumble like the castle of sand that it is.

DirkDiggler11's picture

I trust research, or for that matter any information coming out of Goldman Sachs, about as much as I would trust the Boston Strangler to give me a neck massage.

flacon's picture

Well sometimes they are right and sometimes they are wrong. They were right when the called the gold crash a few days before it happened. You never can tell with liars - because some times they might be telling the truth. 

Bam_Man's picture

That's right! 

Sometimes when these lying bastards tell you they are lying, they are lying!

SnobGobbler's picture

inflation to-the-moon!

suck it goldman!

CrashisOptimistic's picture

This stuff is prepared by people trying to look relevant and keep their jobs.

This is not a world where capitalism and capitalism analysis has any meaning any longer.  The Fed is printing $85 Billion/month BECAUSE IF THEY DON'T THE SYSTEM FAILS.  Just turn back the clock 7 months or so when the announcement was made.  It was a huge amount.  It was done just before an election, risking the Fed's poltical independence.

It was done, taking that risk, out of desperation.

These analysts are just trying to stay employed.  Nothing they have to say means anything anymore.  The Fed is printing money in enormous amounts and essentially nothing else matters.

TheProphet's picture

Actually, Behghazi hit the wires on Tuesday night Sept 11 and Wednesday morning Sept 12. The Feds made their move on Thursday Sept 13.

Now, the Feds and everyone on Wall Street knew well in advance this doubling of QE was coming... and that it represented clearly that the economy was still in the shitter just two months before the re-coronation of Black Jesus.

If you want to slip on your tin foil hat and wonder if Benghazi was a CIA op that got out of hand, all to provide column fodder for the 24 hour news cycle while Ben made his announcement, you may.

Also recall that by Sunday Sept 17 Obama's little honey was making the rounds on Sunday Talk shows disavowing Al Quaeda's involvement. Only when Romney's campaign would not let it go (a risk the Obama camp had not forseen) did they come back around two weeks later with the Al Quaeda angle.

Though I doubt the story would ever unfurl as I described it, all it would take is for one person to come forward (Petraeus, who won't) and Obama would have a Watergate on his hands.

RopeADope's picture

Where is the fraud lifecycle model? Or the wealth redistribution through bubble blowing model the Fed uses? The labor destruction through higher PE model? The cap gains tax receipts needed by IRS model?

MrBoompi's picture

So we can plan on the opposite of whatever Goldman just told us?

Beam Me Up Scotty's picture

Didn't Goldman say the S&P was going to be 1250 just 5 short months ago?  Or was that at the end of 2011? 

flacon's picture

Goldman called the recent gold crash a few days in advance. So liars some times tell the truth, that's what makes them so hard to trust - you never know if they are lying or not. 

resurger's picture

Paul Krugman called a bear market on gold just 1 day before the quick future suppression on the CRIMEX  last month ... the elites above him dictated him to blog on ZH and say this.


so as usual the low barbarians at the Fight Club just told him to fuck off, so he signaled the green light for Blythe to ratched the paper ponzi down.

Paul Krugman votes 1 for the Tyler's and he voted 100 for Dow 20,000 article by one of the contributors.

Paul is a good indicator for gold sale, i just wonder how much gold will be after they close the shorts on paper gold.?!

slaughterer's picture

Correct: Kostin had S&P target of 1250 for EOY 2012.

Can we believe him now?

ABG LINE's picture

"Now you're learning Boy-O"     -quoted from the movie Glory

RopeADope's picture

Goldman probably noticed that clients with high hit rates went long with the breakout above 1600, wants a piece of that action so is shaking out dumb money to provide its prop desk with better entry points. Target of 1750 where it will unload to captive pension clients.

resurger's picture

expect S&P 2000 by year end ...

Motorhead's picture

Who cares what Goldman has to say.  What do Simon Black and Dick "Oy Vey" Bove' have to say?

Haager's picture

1600 by year end... could still be possible even if 1700 is hit this month.

So, due to Goldman we get some retrace Monday and maybe Tuesday, and then the ball will go up, up and away...

moneybots's picture

"The S&P500 now trades near fair value based on a variety of approaches."


Not if you take away the financial fraud that supports it.


slaughterer's picture

I did not need Goldman to tell me to start shorting on Friday.

CrashisOptimistic's picture

Let me make this clear for you.

STOP TRADING.  You're being stupid.  You're playing in a game you will not win.

Buy farmland.  Have a chance, at least.

Atomizer's picture



Good afternoon Janet Napolitano. Hope your broomstick hasn’t bungled sweeping corruption under the rug. How do you plan on explaining the Globalized Core group? Presently, the Semi-Periphery| Periphery groups have successfully created many terrorist intimidations/attacks? Isn’t your goal to protect by masquerading the corrupt Core division? Or, is it the US taxpayers who grease your budget finance department?


I’m applying your some mythology… “ If you see something, say something!”


Wish you a grand 69 weekend. Kisses

Fuku Ben's picture

They will spare no expense to silence dissent

Amount spent to crush 1 DHS whisleblower > Money spent to kill OBL

SpanishGoop's picture

"S&P 500 now trades near fair value...."

Moewhaha, funny guy.


ISEEIT's picture

I haven't entered a 'trade' for the last couple weeks. Just watching. Ever since the Gold heist it all looks like spooky action to me. Waiting for ranges to form (if they do?)

Fuku Ben's picture

I prefer to look at the glass half full

Fuku Ben: "100% upside for getting out while the gettings good and properly playing the next downside"

You too have the potential to be the next Paulson


PC Load Letter's picture

As long as Papa Smurf is printing a trillion a year valuation means nothing

ekm's picture

When primary dealers and other major world banks own almost all the major stocks in the world stock markets, there is absolutely no difference between S&P 1600 and S&P 16000.


Hongcha's picture

I'm likely shorting a gap open Monday morning, based in part on or confirmed by this article.  It is good to finally have someone or something like GS toll the first bell.  

A green gapper Monday morning is a green light to shorterster gamblers.  I'm not saying it will work; but that it's the indicated play.  Short a Monday open gap up.

slightlyskeptical's picture

Market is up every Tuesday of the year, so take care of biz quickly.

mrdenis's picture

OH shit Goldman says ZERO chance ......I'm going "all in" monday

W T F II's picture

Does anyone see through the 'secret' CODE..? It is ALL in the name..."Goldman"= GOLD, man...!! Just sayin'..??!!