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Goldman Cuts 2015, 2016 EPS Forecasts On "Diminished Global GDP Growth" Just As Fed Surprises With Hawkish Outlook
It is perhaps the definition of irony that just two hours after the Fed issued a surprising statement that was so bullish on US growth it is as if the past month never happened, as if Williams and Bullard never threatened with QE4 just because the market almost entered a correction, and that made Goldman's chief economist Jan Hatzius to a express "modest hawkish surprise" that the very same bank, Goldman, whose alum is in charge of the NY Fed (leading to hours of secret tapes exposing the white glove treatment Goldman gets at the Fed), just announced it was cutting its 2015 and 2016 EPS forecasts "diminished global GDP growth and lower crude prices."
Here is how Goldman's David Kostin puts it:
We trim our S&P 500 earnings forecasts to incorporate diminished global GDP growth and lower crude prices. Our revised EPS estimates equal $122 in 2015 and $131 in 2016, reflecting growth of 5% and 8%. Every 100 bp shift in US GDP growth translates into $6 per share, while a similar shift in world ex-US GDP growth is $3 per share. A $10 drop in next year’s Brent oil price from our $84 assumption would lift 2015 EPS by just $1 but raise 2016 EPS by $4. We forecast 2015 sales growth of 4% and net margins of 9.1%, both below consensus. A 50 bp shift in margins equals $5 in EPS.
We forecast S&P 500 EPS will rise from $116 in 2014 to $122 in 2015 and to $131 in 2016, implying annual growth of 5% in 2015 and 8% in 2016. Our estimates are below current bottom-up consensus EPS estimates of $129 in 2015 and $144 in 2016. Looking ahead, we expect S&P 500 EPS will rise by 8% to $141 in 2017 and by 6% to $150 in 2018. We revise down our near-term earnings forecasts to incorporate diminished global GDP growth and lower crude prices. We now expect S&P 500 EPS of $122 for 2015 and $131 for 2016, down from $125 and $132, respectively.
The largest gaps between our top-down sector earnings forecasts and bottom-up consensus occur in Energy, Health Care, and Information Technology. Exhibit 16 compares our sector earnings forecasts with the bottom-up consensus estimates.
We forecast S&P 500 sales excluding Financials and Utilities will grow by 4% in 2015 and 6% in 2016. Our sales estimates are roughly in line with consensus, 4% in both 2015 and 2016, but differ by sector composition (see Exhibit 17). Looking further ahead, we expect S&P 500 sales growth of 7% in 2017 and 6% in 2018.
We forecast trailing four quarter net margins will remain at the current historical high of 9.1% through 2015 before rising slightly to a new peak of 9.2% in 2016. The forces that influence margins are equally balanced between upside and downside. Firms remain focused on efficiency gains and cost controls, and commodity prices will remain controlled. Labor costs are a potential headwind for margins in the medium-term.
Margin expectations are the key difference between our forecast and consensus. Bottom-up consensus forecasts S&P 500 margins will reach a new peak level of 9.2% by the end of 2014. Consensus also expects aggressive margin expansion to 9.8% in 2015 and to 10.5% in 2016.
Our forecasts do not incorporate an explicit buyback assumption because the impact of buybacks on S&P 500 EPS is low. The index EPS calculation aggregates company earnings rather than EPS, so company share counts have less impact on the index.
So if something unexpected happens and declining global growth is also met by a oil supply crunch and Brent soars right back over $100, what does that mean: a US recession and global depression?
As to what the main driver of Goldman's bout of gloom is, the answer is everyone but the US.
We assume Global GDP grows at an average annualized rate of 3.3% in 2015 and 3.8% in 2016. Our assumptions imply the world excluding the United States grows at 3.3% in 2015 and 4.0% in 2016. Both Global GDP growth assumptions are slightly below our economists’ current forecasts of 3.5% and 3.9%, respectively. Exhibit 6 shows the sensitivity of our EPS model to various US GDP growth rate and Global ex-US GDP growth rate assumptions.
So with global growth slowing, which is to be expected with the Chinese housing bubble rapidly deflating and Europe in a triple-dip recession, hooker and blow addbacks to pro-forma GDP aside, Goldman is basically expecting that the US will decouple from the entire world, and grow at the highest rate since before the Lehman collapse?
Exhibits 2 and 3 show the sensitivity of our EPS model to various US GDP growth rate assumptions. A 100 bp shift in 2015 US GDP growth translates into a $6 per share shift in 2015 EPS. The sensitivity of our 2016 EPS estimate to 2016 US GDP growth rates is similar. Our US GDP sensitivities incorporate both the change in US GDP and the consequential adjustment in Global GDP growth.
Even with a US economy expected to grow at 3% in the next few years, investors are concerned about a slowing world economy and the impact on S&P 500 EPS growth. Foreign sales accounted for 33% of aggregate revenue for the S&P 500 in 2013. However, that means 67% of revenues are earned domestically.
Our EPS model is more sensitive to US GDP growth assumptions than Global ex-US GDP growth. While a 100 bp adjustment in US GDP growth moves S&P 500 EPS by 5%, or $6 per share, the equivalent 100 bp adjustment to Global ex-US GDP growth changes EPS by less than 3%, or $3 a share. Sector sensitivities differ as some areas are more globally exposed than others.
Oh, and we forgot to mention: the US is expected to grow 3.1% as the Fed not only no longer injects the much needed flow to keep the market rising, but is also, supposedly, about to start hiking rates making the US economy encounter something it hasn't seen in over 6 years?
Good luck.
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$0.25 cents for a Spiderman comic. $0 for Goldman "research".
It's clear which is more valuable.
buy stawks .....and don't worry if you become muppet stew
Any muppet who winds up as muppet stew can be thankful they've done a banksters belly good!
Rut-row
Just more bullshit. This market has gone straight up without a meaningful correction since March 2009. What a fucking joke
We no longer are able to make mistakes in our investment choices. The Almighty Fed has our backs no matter what.
I think their estimates going forward are VERY optimistic. By the end, these will have been the high side forecasts.
So if the Fed and Goldman are the same in the sense that they say one thing and believe the opposite then as far as Goldman is concerned that would mean buy stocks (Goldman actually believes the economy/inflation are picking up and they want to buy your stock on the cheap) whereas the Fed actually believes growth is decelerating thus meaning "buy bonds" (something they still are in fact massively doing in the form of say interest payments).
Neither need be mutually exclusive I might add since equities are a risk asset and must be "bought" (offset in the form of treasuries or currency) in order that said risk be mitigated. That said clearly the debt and currency are the safety trade...and indeed have been so all year.
I'm very suspicious of this Ebola story btw...not in the sense that it is a hoax but in the sense that it is clearly being "underplayed" thus creating a "fear trade" in equities (pushing equities higher...indeed much higher) that can only be magnified by Government "bungling" or "failure to act against."
I am not only fearful that this "the real deal" (and many of us may die because of it) but also that this type of "fear trade" is unatural...and should it wear off through Good Governence that certain equities could really get slammed here. Yes, Facebook does come to mind. "I have Ebola" is probably not good for increasing membership.
If you create your own logs of reported data, then you can look at the time frames as they make sense to you, not as hand picked by Goldman or the Fed for the shortest periods for their benefit.
Real EPS growth versus the reporting of earnings beats, for example.
Real per share earnings growth uear over year is declining. So has the rate of real growth in corporate profits year over year.
Job growth stats month to month is a farce. ALl one has to do is look at the last 20 years of data to see that something is really wrong. Go back further and you wonder what the hell...
Easy money should not be the key to demand. Meeting the needs of the consumers should be.
5% - 10% growth next 2 years.....OH OK Goldn Slacks, got it thankx.
please buy more stocks!
regards, GS
I officially give up. It there anyone out there willing to give a few fiat notes for my accumulated gold/silver stash before it becomes worthless?
More useless bullshit from the cream of the crop of bullshit artists. It's all made up. Fuck Goldman.
Squid says USSA gets decoupled from the global recession flames when it exports over $2T in a year ?? Is this some kind of fukkin joke ?
and how much of that number is 'financial products'? The world must have those to survive in a dollarized world. I they don't buy our MBS how can they make Mercedes, Swiss chocolate or fine Bordeaux?
Yes we will be fine because we make what every other country must have, fine American...paper.
So Goldman is in fact long then.
Irony? I think you mean "feigned schizophrenia" there, Tyler.
Lack of clear direction is a tool to prevent everyone from front-running the obvious.
As long as stocks can rise faster than the world grows we will all be just fine. The future will call this the age of miracles.
If the market can persist a few more weeks without crashing I may decide to read that as a full commitment to hyper inflation and let it ride.
After all they will not allow deflation and just keeping things level is not what they do. They clearly see the need for 'growth' in stock markets. Mind you this is just with pocket change but I might buy an index just to keep my mind in the game and to maybe get lucky and be able to get a few more ounces before it ends.
Zimbabwe's market did well under Gideon Gono.
corporate earnings noting "negative impact of FX on overseas earnings" will be the new black
Gods work to say least
Nothing new here, the Animal Farm just reaches new heights. A couple of days before Saturn enters Scorpio in Vedic astrology. Therefore we will see a new dimension of Martian politics the Saturnian way. In a mrtyuh bhava, the 8th house of death. All in all things will get shaky. To put it mildly.
$131? Well we are already there! 131 x 15 PE = 1965
the growth is in eps which is affected by buybacks and non gaap--
GOOG added 1.3 billion bucks to its net income this qtr by increasing the amount , in dollars of NON gaap while its GAAP earnings stayed about the same.
facebook yesterday which uses non gaap also said it interpreted amourization of goodwill as non recurring and this excludable under non GAAP--
at some point how will companies account for all the crap they throw into non gaap which is a cash flow drain.
New NON GAAP rule--anything goes
You know unbelievably I have a Masters Degree in Accounting. This is NOT what is taught. The amazing part of this entire shit show is that now due to sarbanes oxley there is a whole new curriculum dedicated to pissing on the Enron/Worldcon etc debacles. The amazing part is the "Accounting" now is 1000's of times worse than then. The original function of accounting was to represent the financial health of an organization in the most unbiased way as measured by the law and FASB. It has now been whittled down to a steaming pile of shit. Useless. Worthless. 10k's, 10Q's, dont mean shit now. The idiocy is the pretense that they are still relevant.
very good assumption
the corruption, cheating and lies without consequences from the top 1% sink to the 99%
its everywhere:politics,work,sport
example:Lance Armstrong 7 TDF wins on dope while every one knows it was covered to the last day by governing body
Snowden revelations,NSA,Fukushima,Ukraine,MH17 crash and so on.....
You are right. It has bled over into all facets. Surreal.
OMG!...lower crude prices! Run for your lives!
Who put the Tribbles in the quadrotriticale?!?!?
That is the trouble with Tribbles...
http://dilbert.com/strips/comic/1994-12-18/
For a long time much of the economic landscape has started to look like something out of "Alice And The Looking Glass" A bizarre and unrecognizable land, a land that is distorted and papered over by ream after ream of paper. This paper has been rolling off the printing presses of central banks all across the world in an attempt to mask reality.
Peter Schiff says, printing money is to the economy what taking drugs is to a drug addict. In the short term it makes the economy feel good, but in the long run it is much worse off. The article below delves how what was once the "long run" or "distant future" where this might end may be getting much closer.
http://brucewilds.blogspot.com/2013/01/what-happens-after-momentum-ends_6.html
Goldman is basically expecting that the US will decouple from the entire world"
?????? How can this happen in a GLOBAL ECONONY GOLDMAN???????