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According To Goldman, These Are The Two Things Which Could Unleash A Year-End Market Surge
Yesterday morning, perhaps in a competition with Dennis Gartman who can be more bearish, Goldman Sachs - whose bullishness on the economy we have mocked for the past 5 years - once again capitulated, and lowered not only its S&P profit earnings forecast for the next two years (cutting 2015 from $120 to $109), but also dropped its year end price target from 2100 to 2000. As part of its latest Mea Culpa, Goldman laid out the following bearish catalysts:
- 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.
So is the market doomed to rise only 5% into year end to the now-reduced 2000 price target, which of course is Goldman's euphemism for a major drop from the current 1900 levels? Like every savvy cephalopod Goldman, which was wrong on the "above trend" recovery and subsequent market reaction, has chosen to hedge in case it is wrong on the way down.
According to Goldman there are two things that can unleash a rally into year end, and crush Goldman's bearish revision: they are investor sentiment and buybacks. In other words, because supposedly everyone is bearish, and because company CEOs have to hit record stock-performance driven bogeys and will massively buy back their stock after the blackout period is finished, the biggest risk is to the upside.
To wit:
Light investor positioning and corporate buybacks represent the largest upside risks to our year-end target. Our S&P 500 Sentiment Indicator based on futures positioning data sits at 0 on a scale from 0 to 100, where it has been for seven of the past eight weeks, the longest stretch in its eight-year history. Historically, indicator readings below 10 or above 90 have been statistically significant contrarian indicators, with very light positions indicating short-term tactical upside (+2% to +4% during the next 4 to 10 weeks).
Nearly 25% of annual corporate buybacks occur during November and December. S&P 500 buyback authorizations have exceeded $450 billion through the first three quarters of 2015, and we expect gross repurchases by S&P 500 companies will total more than $600 billion in 2015. Buybacks represent the single largest source of demand for US equities. Most firms are currently in their blackout periods ahead of 3Q earnings reports. The typical year-end surge in buyback activity could help boost the market above our year-end target.
Of course, the irony of the above is that Goldman's buyback desk is by far the most active one on Wall Street, so if anyone knows what happens with buybacks - or has any determination over their pace - it is Goldman. As for everyone being bearish, we'll just take Goldman's "honest" word for that.
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But what about WAR?
Goldman Sachs: Why China will experience a ‘soft’ landing
New name for the squid: Gartman Sachs ;-)
Looney
+100
Translation: The bonds that companies are issuing to fund their buybacks are on shakey ground, and while it is possible that they may actually hit our end of year target, they will likely plummet shortly thereafter, so dear muppets, please purchase the shares that we own. The closer you do this to our target the better! Remember, BTATFH! (From us...)
Only if QEinfinity goes back in to full on keyboard stroking
Well, let's hope they're right. I'm having a hard time gathering AUM fast enough to outrun the drop in asset prices.
Stealing from the rich and giving to the middle class. Well, the upper middle class anyway.
What is this middle class thingy you speak of?
They're just like rich people but if they stopped working they'd be out of money in a week.
2 weeks. Amex is more lax with the baseball bat-men these days.
Have you ever smelled a decomposing corpse, human or not? Yes? There's your answer.
The Don Henley song "If Dirt Were Dollars" for some reason sprang into my mind when I read this.
Market tried to break higher for 6 months and then finally failed and GS thinks this will resolve itself in a couple of months. Not likely. All they would have to do is look at a quarterly chart to realize they are wrong. So called 'professionals'.
They are trying to get higher prices to short obviously.
So count on a down market through year end. Got it!
I do think end of year, into 2016 Higher Highs, last up before equities pop (bonds pop this year).
A nice 5m trading set up S&P500 http://tripstrading.com/2015/09/30/sp500-5m-chart-set-up/
I'll just watch you and stay short.
I'm not denying that Goldman clearly stands to benefit from heightened Q4 buybacks given its desk's prominence in the role, but is it really that much of a profit center for the bank? That's a cash equities desk, those spreads are incredibly narrow and cannot account for a decent portion of their S&T profit. I'd imagine the commissions generated aren't seen by upper management as a huge boon to the bottom line, to be honest.
According to Pope Francis, these are the two things that can unleash a year end market surge:
- Manipulation
- Money Printing
"Finally, the political landscape in Washington, DC remains unstable following the resignation of Speaker Boehner".
~ "Unstable" now that's funny considering they are all fucking wacko lunitics! Unstable would be a vast improvement!
#3. QE-zilla
"Things Which Could Unleash A Year-End Market Surge"
What is Christmas, Alex?
This time it's going to be different, I think.
Does anyone want to do a Scooby sing along?
Hurricane Joaquin oughta break some windows in the meantime
Or flood some streets so we can be told by the gvt that the seas are NOT rising.
WTF???
Seems the seas have been rising for some time, just do a google on "Doggerland" and see for yourself, not a new phenomenon by any means. Also, the earth has been warming for about 15,000 to 20,000 years, or whenever the Wisconsin glacier started retreating (end of the last ice age). I tend to take the long view on these things, it's a great hedge against government propoganda.
Rising sea levels and melting glaciers, this stuff started happening long before humans could even comprehend the concept of "global" anything. What are you going to pin all that on? I'm not a paid government scientist but I'm sure the sun has something to do with at least a portion of it.
Fuck Goldman...after each one of them is dead.
the way I read that first chart, the more accurate GS is, the better things will soon become for the proverbial 1% while becoming much worse for everyone who works for a living.
Goldman can and should be broken up, along with BoA and probably 5 or 6 other entities. Not that the US government has anywhere near enough honest politicians to do it.
You will get a huge market dump, that is what you will get.
One thing that I've noticed with the squid's predictions when they're trying to muppet some folks is that it often starts off with things moving in the direction that they say, sometimes even hitting their targets, then it abruptly reverses and fucks people hard.
Speaking of a huge dump... I'll be right back.
the psychology of buying stocks in a falling market is pretty much reactionary, just like today you wait for a big selloff and then step up and buy at lower prices, but as for leading the market no way. a rate hike pretty much cancels any chance of QE, and as long as there is a chance of QE tomorrow you can lever up the buyback machine today. so the bullish scenario is outright recession, which is about right for this bizarro market. so yeah i see a bid under this market, is it crash proof? no not if the economic data come in strong.
Hey, Goldsatan. Leave the devil some work to do.
ToHadesWithGoldsatanFUBAR.
That chart at the top... that's more or less the way Tony Caldero sees it too. Caldero is no cheerleader for the ruling class but he can somehow close all that out of his mind and just tell it like he sees it. His track record for actually calling this bull market has been top notch the entire way. He wants it to fall, as it must someday... but he's right in his calls because he has that rare ability to be perfectly honest with himself. https://caldaro.wordpress.com/
To me this scenario also makes sense insofar as that there is no way the FED is going to hike rates just before Christmas and risk a Santa Meltdown. If the markets are surging going into December that would provide the perfect excuse to hold off. "All is well"... and all that shit, ya know?
Goldman shouldn't forget cash, from all the prudent saving done since 2009. Excuse me, I cannot stop laughing.
Buried deeply is the scariest part of the report:
Buybacks represent the single largest source of demand for US equities.
"Buybacks represent the single largest source of demand for US equities."
I would agree to the above statement if it said "new demand".
Old demand is handled by the banks, their hedge funds and HFTs. The daily banker churn is 70%+ of the volume of most stocks.
Two things: QE and QQE
A. Have we reached the point where abby boomers are pulling more retirement money out of the markets than is being put in? It will come if it has not... demographics is a bitch.
B. Investor sentiment? You have to be joking!
C. Buybacks? OK, if Goldman is supplying the fiat-debt-money to companies then I would believe that they will be buying back as fast as they can (and for those companies that pay thier employees in stock shares, tough luck) ... and that will hide negative growth and lower profitability? maybe.