Goldman Capitulates, Cuts S&P 500 Earnings Forecast And Price Target; Sees Market At 2,000 By Year End

Tyler Durden's picture

With three months left in the year, we were wondering how long it would take before Goldman's equity strategist would throw in the towel on his increasingly improbable (unless of course the Fed launches QE4, NIRP and/or helicopter money in the coming months) year-end S&P500 price target of 2100. The answer: not very long, as this is precisely what Goldman did overnight, when it cut both its 2015 and 2016 EPS forecasts (to $109 and $120 from $114 and $126), with a corresponding cut in Goldman's 2015 year-end price target from 2100 to 2,000, rising to a nice round 2,100 the year following.

The catalyst for the cut: precisely the two things Goldman had been - incorrectly - banging the table on for months and years, namely that US growth is accelerating, and that low oil prices are good for the economy. 


Here is David Kostin's mea culpa:

Slower economic growth in the US and China and a lower oil price than we previously assumed translate into a reduced profit forecast and a lower trajectory for US stocks. Our revised top-down 2015 S&P 500 EPS forecast of $109 (from $114) represents a 3% year/year decline. Our new 2016 EPS estimate of $120 (from $126) reflects annual growth of 10%. We expect S&P 500 will rise by 6% to our lowered year-end target of 2000. We expect S&P 500 will climb by 5% to 2100 in 2016. Focus on stocks with high US sales, firms returning cash to shareholders, and high quality stocks.

Some details:

We have lowered both our S&P 500 earnings estimates and price targets. The impetus for these reductions is that our models now incorporate a slower pace of economic activity in the US and China and a lower oil price than we had been previously assuming. We cut our 2015 EPS estimate by 4% to $109 and our year-end price forecast by 5% to 2000. Previously, we had assumed EPS of $114 and expected the index would climb to 2100 by the end of this year.


A lower path of profits is an obvious reason to lower a price target but the risks for the index level and P/E multiple have also increased. In 2016, we expect US GDP will rise by just 2.4% and the world ex-US will expand at 3.7%, down from our prior assumptions of 2.8% and 4.3%, respectively. China is growing much slower than we previously assumed. Our CAI suggests economic growth is about 100 bp slower than the official GDP data indicates.


We expect the Fed will begin its long-awaited tightening process this December. Historically, rising short-term interest rates have been associated with declining P/E multiples. We expect the Treasury curve to bear flatten as short-rates rise at a faster pace than ten-year note yields during the next few years. Rising bond yields are consistent with lower multiples. Using our estimates, the P/E will slide from 16.4x today to 16.1x by 2017.


Finally, the political landscape in Washington, DC remains unstable following the resignation of Speaker Boehner. The federal debt ceiling will be reached in November. Precedent suggests raising the debt limit will be contentious and may rattle investors.


Our baseline forecast is that the US economy will grow at a modest pace, earnings will rise, and the S&P 500 index will climb slowly while the P/E multiple declines as interest rates rise (see Exhibit 2). “Flat is the new up” will be the 2016 investor refrain.


And there is your soundbite for 2016: "flat is the new up." Expect the rest of the sell-side penguins to follow shortly with their own year-end S&P price target "revisions" lower.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
29.5 hours's picture

"Flat is the new up" won't work in an unstable system which requires growth and an ever-increasing supply of new suckers. Squid, you can do better in the propaganda dept.

r101958's picture

Now I understand.....Goldman is actually talking about the NASDAQ.

MalteseFalcon's picture

What was Goldman's forecast going into 2008?

fudge's picture

god is not going to be happy.

VinceFostersGhost's picture



Don't ask me what I think about you....I might not give you the answer that you want me to - Fleetwood Mac



buzzsaw99's picture

i am NOT reading that slop

xrxs's picture

This, Icahn and Asia and the futures are now up?!

DavidC's picture

Month and quarter end this week.


Silverhog's picture

2000, some capitulation. I'm just a shit head sitting at an old HP,  that seems high. 1720 might be closer but WTF do I know. 

wisebastard's picture

god must be a rookie trader

Seasmoke's picture

Should be 665. 

cowdiddly's picture

Now thats some Premier forward analysis right there.

An after the fact prediction and pull up the chart with downtrending lines and draw rising 60 degree angles on the end.

Where do they get these guys and why is he being paid?

My grand daughter with a box of crayons can do that.

JamaicaJim's picture

BullBearish motherfuckers....

Gold bitchez

Silver bitchez

Ammo bitchez

Food bitchez

Guns bitchez

all bitchezed out...

chomu's picture

More sell side blahhhhhhhhhhhhhhhhhh....

jakesdad's picture

inconceiveable!  I was at a dinner w/them back in july & they said everything is awesome!  it's almost like they think we're muppets or something!  (our "guy" did talk me into putting a little over $100k into a "negative duration" bond fund w/them - who else but goldman could come up w/a negative duration bond fund?)

Grandad Grumps's picture

Earnings decline while stock prices increase. Apparently Goldman is touting more multiple expansion.

Ponzi multiple expansion fueled by bank monetary expansion has been the status quo since 2009. Good to know that Goldman is in charge and has the ability to come through with their promises without any assistance from anyone else.

Take it away Goldman.

Wannabe_Oracle's picture

Seems desperate - kinda 1929ee