Goldman Expects 3% S&P 500 Upside In Coming Year

Tyler Durden's picture


From Goldman's David Kostin, who first looks back: "S&P 500 began 2014 with a pullback of 6%, repeating its 2013 trend, but then rallied 8% to reach a new high of 1885. The market has not had a drawdown of 10% since the summer of 2012, rallying nearly 50% during that time. Gold and bonds have outperformed stocks YTD" and then forward: "S&P 500 rises 2% in 1Q to hit new high; we expect 3% appreciation during next 12 months" In other words, by the end of this week the Market should hit Goldman's 12 month forward price target.

So far so good, it's all driven by corporate profitability, the permabull pundits will say (barring the occasional snowfall in the winter). However, there is a problem: based on a Goldman calculation of implied 5-year EPS growth rates for the S&P based on a senstivity for the Equity Risk Premium, for which Goldman uses the range of 2% to 4%, and finds a range of -2% to -9% for the EPS growth rate in the next half decade. Surely enough to send the S&P to 1900 today .

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Thu, 04/03/2014 - 09:49 | 4620923 Sudden Debt
Sudden Debt's picture

That's the same as a negative interest rate.

If you gave that on a checking account, people would pull their money out.

You call it a investment and they all flock in...

Thu, 04/03/2014 - 09:57 | 4620949 Headbanger
Headbanger's picture


Thu, 04/03/2014 - 10:30 | 4621054 furgheddubouddit
furgheddubouddit's picture

EPS? lol

This kind of data is only relevant to traditional investors, but they all fled the markets a long time ago.

An algorithm has no use for this kind of data. It is built purely for speculating. It's earnings are achieved through capital gains, which it can guarantee by continuing to pump up the markets.

Whether or not the underlying companies are experiencing earnings growth, or even turning an actual profit for that matter, does not at any point enter the equation.

If stock valuations really were still influenced by their underlying fundamentals, the S & P would be back at 1400 by now.

Thu, 04/03/2014 - 09:51 | 4620930 buzzsaw99
buzzsaw99's picture


Thu, 04/03/2014 - 09:51 | 4620931 Dr. Engali
Dr. Engali's picture

A 3% return? Damn! I need to run out and pay a 5% commission to get me some of that!

Thu, 04/03/2014 - 09:52 | 4620932 SheepDog-One
SheepDog-One's picture

How could GS mean +3% in a year? They must be on the crackpipe...that's 1 weeks worth of upside now.

Thu, 04/03/2014 - 09:55 | 4620942 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

They must setting a trap for muppets if there are any ones stupid enough to keep playing a rigged game.

Thu, 04/03/2014 - 09:52 | 4620934 NoDebt
NoDebt's picture

Will it hit their target?  Almost certainly.  It'll probably hit it 10 more times by the end of the year on the upside and the downside.

Thu, 04/03/2014 - 09:55 | 4620943 LawsofPhysics
LawsofPhysics's picture

Like I said this summer, it's time to think about less about the return on capital and more about the return of capital, period.

Thu, 04/03/2014 - 09:57 | 4620945 medium giraffe
medium giraffe's picture

'The market has not had a drawdown of 10% since the summer of 2012'  Who needs Virtu?

Thu, 04/03/2014 - 10:01 | 4620962 nickels
nickels's picture

I don't know why the Ft. Hood guy did what he did, but if a member of Congress showed up at work and did the same thing I would totally get it.

Thu, 04/03/2014 - 10:03 | 4620966 adr
adr's picture

Humans sell and the algos buy. There is no market. The market haslost all meaning to the economy, there is no link anymore.

Stores exist to channel stuff inventory in order to pump stocks. The inventory exists to offset corporate taxes. The entirety of publicly traded corporate balance sheets is made up on the fly.

There isn't real profit, only conjured dollars through stock sales that flows to the 1%. Everything under the surface is eroding and there isn't another layer of topcoat to cover the cracks. We've been in a depression since 1999, only by changing definitions has this truth been hidden. Had intangibles not been added to GDP, we'd have already had recessionary prints. The media is a talking points joke and welfare pays more than 90% of the available jobs.

The higher the stock market goes, the worse the real economy gets because the only business allowed is what will generate the best return on stocks. Fraud always generates the best returns, until it doesn't. Since the fraud had been authorized and protected at the highest levels, it won't end until those who authorized it are hung on public streets.

Thu, 04/03/2014 - 10:25 | 4621044 ReactionToClose...
ReactionToClosedMinds's picture

I reluctantly concur.   hope we are not approaching soviet union 1970s/1980s phase.

we pretend to work; they pretend to pay us...while more and more are disincentivized into gov't benefits. It is the smart, realistic, thing to do.  The only successful 'risk-takers' are crony capitalists largely...the rest of us are scrambling to get  by....   so many frauds happening all around each of us see that are not 'reported' or prosecuted.

the US federal gov't is more important to the life of every human in the USA than anything else ...including blood relatives & immediate family.  Surreal

Thu, 04/03/2014 - 10:05 | 4620977 The Wisp
The Wisp's picture

It's a Poker Game on a riverboat, and all the card sharks are looking around the table, and there are No Suckers,  and they are starting to Panic...

Thu, 04/03/2014 - 10:17 | 4621022 Quinvarius
Quinvarius's picture

This is like them saying, don't buy more and run it up, but don't sell yet either.  It is almost as if they are shorting, don't want anyone messing with that, and will tell you when to sell at the bottom.

Thu, 04/03/2014 - 10:27 | 4621050 Squid Viscous
Squid Viscous's picture

let's see, 3% upside with 20-30% downside risk (or more...) I'm calling my broker right now!

Thu, 04/03/2014 - 10:38 | 4621084 overmedicatedun...
overmedicatedundersexed's picture
  1. take out inflation and you got a negative return on your investment
  2. all the automatic stock purchases of funds and pensions keep going
  3. pcln to 5000, with no one taking a vacation is now possible
Thu, 04/03/2014 - 11:08 | 4621204 MFLTucson
MFLTucson's picture

On what, printed money and institutional manipulation?  Because, no one I know will put a dime into this charade!

Thu, 04/03/2014 - 11:41 | 4621342 jtz5
jtz5's picture

"The market has not had a drawdown of 10% since the summer of 2012."

For the history buffs out there, have we ever gone that long without a 10%+ correction?

Thu, 04/03/2014 - 12:05 | 4621409 soopy
soopy's picture

It's more than gold will get.

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