What Goldman Is Telling Its Clients: Sell In May And Don't Come Back For One Year

Tyler Durden's picture

While Goldman gives the following explicit warning in all of its public research pieces: "Our asset management area, our proprietary trading desks and investing businesses may make investment decisions that are inconsistent with the recommendations or views expressed in this research", the reality is that in recent months Goldman's chief equity strategist David Kostin has been getting increasingly "toppish" if not outright bearish on stocks. In his latest report he now openly warns that "the market will rise to 2150 by mid-year but fade after the Fed raises interest rates in September for the first time in nine years." As a result Goldman's "year-end forecast is 2100 and its 12-month target equals 2125."

Which is where the S&P 500 closed on Friday. In other words, sell in May and come back until next May.

Here is what else Goldman is telling its buyside clients:

During the last 50 years, dividends accounted for nearly 80% of the total return generated by US equities. The proportion fell to 45% during the past 25 years and 35% for the past decade. However, since the 2009 financial crisis lows, price return has accounted for more than 80% of the total return of the S&P 500 as the P/E multiple soared from 10.1x to 17.3x. Looking ahead, the market implies 46% of the total return for stocks during the next decade will be generated by dividends, in-line with the past quarter-century.



The median S&P 500 stock trades at a P/E of 18.2x, the 99th percentile of historical valuation, and has limited scope for further upward expansion. Investors are looking to enhance performance by buying stocks returning cash to shareholders. We forecast S&P 500 firms will return $1 trillion to investors during 2015 via dividends and buybacks. Cash dividends will total $400 billion, a 7% increase from 2014, while buybacks will climb by 18% to $600 billion. The median S&P 500 stock trades with a 1.9% annualized dividend yield, slightly below the ten-year US Treasury note yield of 2.2%.


In addition to high dividend yields, investors are also looking to boost returns by finding stocks growing dividends at a rapid pace. The median S&P 500 stock is expected to grow its dividend by 8% annually during the next two years. However, with record levels of cash on corporate balance sheets, many firms are increasing dividends at a much faster clip.


The dividend swap market foreshadowed by more than six months the underperformance of shares in our dividend growth basket. The rebound in the dividend swap market at the start of 2015 presaged by two months the recent rally in our dividend growth basket.


At the sector level, Telecom and Utilities offer the highest dividend yields at 4.8% and 3.7%, respectively. Information Technology and Financials account for the largest proportion of gross S&P 500 dividends paid, each at 15% of the index total. The fastest dividend growth is found in Financials, Health Care, and Consumer Discretionary, each with a 13% pace.



The historical relationship between the cyclically-adjusted P/E multiple (currently 23.4x) and forward equity returns suggest the prospective 10-year annualized total return for the S&P 500 will be 5%. Dividend levels implied by the swap market suggest that 46% of the total return during the next ten years will be derived from dividends, and 54% from price gain.

Which means annualized capital appreciation (i.e., price increases) over the next decade will be just about 2.5%. And that is assuming record central bank intervention. One wonders: what happens if and when the central planners finally pull the plug?

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wendigo's picture
wendigo (not verified) May 16, 2015 5:31 PM

Should I cash out the 401k or what? 

j reuter's picture
j reuter (not verified) wendigo May 16, 2015 6:51 PM

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... w­w­w.j­o­b­s­-r­e­v­i­e­w.c­o­m

Pool Shark's picture



"...but fade after the Fed raises interest rates in September ..."



I stopped reading after this...


MonetaryApostate's picture

I have two words for you if you are in any of the markets...



Hope Copy's picture

Hey, nothing else is working for the fed and how are they to many moey with no interest..  I say the sooner they jack it, the better.

saveandsound's picture

Never forget, don't do what Golman says, but watch what Goldman does.

messymerry's picture

I don’t know, (I hate to say this...) Goldman may be onto something here.  I called a 2150 top last year, but it's taking longer than anticipated for the software developers to get everything working.  All the stops will be pulled out until the mechanisms for bail ins are in place and tested, then when the exits can all be locked at the flip of a switch, the markets will be allowed to crash and in the turmoil, all the debt documentation will magically disappear.  Due I'm sure to various and sundry server crashes and massive bungling by certain organizations and TLAs which I needent name here... 

I love being part of the lunatic fringe,,,


JRobby's picture

More fiction.

What is going to happen in a year? Too much debt to directly stimulate consumption.

philipat's picture

Such an optimistic forecast (In comparison to the real probability of a complete market crash) can mean only one thing Muppets. Yup, Golman is SELLING like crazy in its Prop, oops, I meant non-directional client hedging, trading accounts. Remember, Goldman NEVER provides anything useful to Muppets for free. Always do the opposite of what they say in such "Free" publications.

Hope Copy's picture

Buy as much flat black farmland as you can  ..  get a farmland manager and expect around 3.5% return..  I expect a crop 'failure' in the Kiev Ukrainian sector of the Donbass this year.

DutchR's picture

So there is cash in you're 401?


Get the tomato plants inside, stat

Took Red Pill's picture

"sell in May and come back until next May." We always do the opposite of what Goldman says so does that mean buy? I'm so confused!

Amish Hacker's picture

It probably means that the current algo-driven blowoff insanity will continue until next May. Then, shortly after you obediently buy back in, a no-bid market plunge will render you pennyless overnight.

yogibear's picture

Goldman does what's good for Goldman, not it's clients.

They have no loyalty.

stantheman's picture

But Tyler all your blogs about Goldman has a common theme..do the opposite of what the Giant Squid tells you do??? 

Isn't that applicable for this as well? Or is this one different? 

So then we should bet the ranch on S&P and QQQ like Appolossa did in Q1???


What do you think?


Dead Canary's picture

If Goldman is telling the truth for once to cover it's ass, that means the BIG ONE is coming.

Remember when Jim Cramer said "Don't sell Bear Stearn's. That's just silly!". He didn't suffer a loss to his credibility because he never had any. But Goldie can't afford to look foolish.

JRobby's picture

"If Goldman is telling the truth for once to cover it's ass" (laugh track deafening)

Perseus son of Zeus's picture

The stock market will never have a large correction again. Not in your lifetime anyway.

Buy the small dips and praise your hebrew masters.

Low Tech Future's picture

Agree.  It's a safe bet to do the opposite of what Goldman Sachs says.

If Goldman is accumulating stocks and call options, they will tell you to sell.

Like clockwork.  It's an open secret.

TheReplacement's picture

Or it is a head fake to push equities lower (SELL ALL THE THINGS) to force the Fed to not only not raise rates but to QE4.  In the meantime, Goldman would be BTFDing.

Is just a theory.

TeethVillage88s's picture

I think he is also saying that since OWS people and ZH people are saying stop using credit cards, we want to go Cashless.

And don't worry we have Janet and Christine Lagaurde on board.

Seasmoke's picture

So sell in May and then sell some more next May ???

stant's picture

See martin armstrong article below

Perseus son of Zeus's picture

I know for a fact that Armstrong is accumulating facebook. So fuck off.

Dumgoy's picture
Dumgoy (not verified) May 16, 2015 7:07 PM

That's how Golden Sacks do.

adr's picture

Does Amazon, Tesla, Chipotle, Netflix and the rest of the momentum stocks pay dividends? Apple got dragged intonit kicking amd screaming.

People used to buy stocks for the dividends. It was the point of owning stocks. Now they buy stocks for the greater fool dividend.

Wild Theories's picture

but the greater fool dividend is so much awsomer, is it not?

I'm sure I can sell this overpriced junk I bought for an even more ridiculous price to someone else...

DutchR's picture

Here it is, i have reached my level of drowing, i surrender to the goldman

Go take my Chair youtube.com/watch?v=dhWUFXvaZjo

Mini-Me's picture

Grandma Yellen wants to keep her job, which means QE4 late this year or early next.

Stained Class's picture

Grandma Garden Gnome Yellin keeps her job by doing ABSOLUTELY NOTHING. 

"Keep your Hands off the Wheel!" Step away from the vehicle. The Bernank left it on autopilot.

bluskyes's picture

If only she would take her hands off the wheel


Stained Class's picture

I'm not sure if you realize this, but when a corporation buys back it's stock the dividends on those shares cease to be paid. Therefore, a high dividend-paying company automatically saves MORE than the cost of financing the buyback with bonds just by the money it saves not paying dividends on the bought-back shares (which it cancels). You follow me? 

"Keep following me, I'll have you arrested!" -Groucho Marx

Amish Hacker's picture

Except that the corporation's balance sheet is weakened by the additional debt taken on to buy the shares.

Stained Class's picture

Yes absolutely, and interest expense aside, as in a home the Equity fluctuates whereas the debt is constant. The Fed has moved stocks higher, but debt levels have moved higher as well.

If/When things move lower, the level at which losses start accruing is much higher than 2007....right? You sound like you have accounting background. I do not. I've just seen this show before....

TheReplacement's picture

Isn't the thinking that near ZIRP is less costly than dividends so they can pay that back (and propagate the profitibility line too)?  I'm not asking if it will work this time around but only if that is the thinking behind it.

Amish Hacker's picture

I won't claim any great expertise, but here's my take. Zirp has caused a huge misallocation of capital into LBOs, share buybacks and M&A instead of into long-term capital investment in plant, equipment, R&D, etc. If a company like Apple can't find anything better than stock buybacks to invest in, then something is seriously distorted.

Tax structure compounds the problem. It's cheaper for Apple to sell bonds and spend the proceeds on stock buybacks than it is to repatriate foreign profits, pay taxes on them, then use that money. This does nothing to encourage future output and productivity. Real net investment in the US busines sector in 4Q 2007 was $400 billion. In 4Q 2014, it had fallen to $300 billion.  

We are witnessing strange times, when companies load up on debt in order to cannibalize their equity.

Hope Copy's picture

Na..  He wants more day trading..  Get you wigi board out  and have your snub nose 38Special on the table for every play (Deer Hunter - 'Nick')

JoeTurner's picture

How about switching to self directed IRA then Buy land and Blackwater stock?

Ted Baker's picture

Whatever GS says you must always do the opposite!

fremannx's picture
What Goldman Is Telling Its Clients: Sell In May And Don't Come Back For One Year

Ironically, it's good advise as the Dow is about to crash and burn within days. Has Goldman lost touch with reality?