Schrodinger's Market: Goldman Now Has Two Year-End S&P Price Targets

Tyler Durden's picture

For months, we were wondering how much longer Goldman would ignore the relentless market meltup without revising its year-end S&P500 price target, which at 2,400 was not only among the lowest on Wall Street, but also some 150 points away from twhere the S&P currently is. Furthermore, as of this weekend, Goldman's 2018 and 2019 targets for the US equity index, were 2,500 and 2,600, implying there was only 50 points of upside for the next 26 months.

All that changed today, when Goldman unveiled that quantum mechanics is not the only arena where objects can exist in superposition: it turns out the "Schrodinger's S&P" can also have two distinct states prices at the same time, too.

In a report from chief equity strategist David Kostin, he unveils that Goldman now has not one but two price targets for the S&P500: the first one is the traditional one, the same 2,400 as noted before. However, in a plot twist, one which casts the entire role of equity strategist into question, Kostin also said that the S&P 500 price target may "perhaps be 2650" if tax reform passes.

As he explains, "the 2400 target assumes no reform and P/E of 17.3x. 65% probability of passage by 1Q." However, "with tax reform, target could be 2650 (17.9x)."

Of course, the fact that it is Kostin's job to take all these probabilities into account when making his year end price target - his one price target - seems to be lost on the strategist, who like the rest of Wall Street had no idea how far the S&P would keep rising and instead of chasing the market, has decided to just bracket it with a low and high "target." And what better way to avoid getting pestered by angry clients at the end of the yearm than to just give them the option of picking which target they like better.

This is how Goldman gets from its baseline 2018 EPS of $139 to the higher possible scenarios, incorporating a tax plan, and boosting EPS by as much as 12%:

What makes today's report even more awkward is that despite the cheap cop out in which Goldman kinda, sorta raises its price target but doesn't really (recall Goldman's baseline is that the odds of a tax deal getting done by Q1 are 65%), is that in the very next sentence Goldman admits that stocks are already overvalued:

  • S&P 500 index trades at high valuation on most metrics vs. last 40 years (88th percentile).

Even more troubling, while the average index shows some room for upside at "only" the 88th percentile of historical caluations (which is dragged lower by the fact that companies no longer spend on CapEx), the median stock now trades at 98% percentile of all tiem valuations, meaning that for all intents and purposes, it has never been higher.

Here are the visual breakdowns of some key valuation metrics:

And while stocks may appear cheap on a FCF yield basis, Goldman concedes that this merely reflects the "plunge in capital spending."

Nowhere is the plunge in investment spending more obvious than in the following chart which shows that real capex has been flat since 2001!

Finally, for those who aren't skeptical enough already, here is Goldman admitting that the only source of stock purchases are... the companies themselves:

  • Money Flow: Positive net demand for shares only because Buybacks offset aggregate net selling by combination of other ownership categories

Luckily, none of the above matters in a world in which Bill Blain, said yesterday, "This Time It Really Is Different! The Machines Have Taken Over And They Will Never Sell." Blain was joking, although perhaps ironically he had stumbled upon the truth that has made this market into what it is today.

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Lumberjack's picture

Why are there pitchforks in the equation?

YUNOSELL's picture

The only way Goldman will ever get the justice it deserves when the time comes

Brazen Heist's picture

Because they represent a revolutionary thing in QM called the wavefunction.

Zero_Ledge's picture

Goldman should use QM algorithms more often.  Then they can be right until a measurement is made.  Maybe they could structure a synthetic CDO around it.  "I'm sorry sir, the wavefunction has collapsed at S&P=2650.  You owe us $1B."

Brazen Heist's picture

Haha.....Bringing you the QM CDO....I hope Wall Street quants aren't getting any ideas here. There's a parallel multiverse of opportunity to be had.

Throat-warbler Mangrove's picture

PSI is just one component of the wave function ...  sigh and wave goodbye to your money.

consider me gone's picture

Because quantum entanglement can be a bitch when economic wave functions start collapsing.

Barney Fife's picture

I'll bet nary 1 in 100 here know what that equation in the teaser avatar represents. And in the real world I'd put that number at 1 in 5000. Maybe. 

Mustafa Kemal's picture

"I'll bet nary 1 in 100 here know what that equation in the teaser avatar represents."

My mother used to wear a tshirt with that on it that I gave her.

She didnt know what it meant but told me she didnt feel bad about it because most people she met didnt know either.


Barney Fife's picture

It's a bitch of an equation to solve, I'll tell you that. 

Zero_Ledge's picture

I studied "engineering" or practical QM.  Just recently I've been trying to understand the Dirac equation.  Now that is some seriously crazy shit, all condensed down to a few symbols.

I think 1 in 5000 is WAY too generous, sadly.

Iconoclast421's picture

EPS $139 hahhahahahha. I'll believe that when I see it. That's gonna take one hell of a lot of buybacks.

Ben A Drill's picture

I’m going to pick the third box. The one that says WWIII all over it. It’s radioactive, has small pox and the plague mixed in. And a strain of the flu that we have not seen before that has no antibiotics that will stop people from dying.

What was the question again?

Irvingm's picture

Goldman, pulleaaazee...


That is why ShepWave analysts left 

It is one thing to make predictions it is another to have predictions come true. Keep up the calls shepwave. At least one reputable analysts left.

Rainman's picture

Okay, this means S&P still got 12 points to go to get to the 100th percentile..bullish then

LawsofPhysics's picture



GS is a fucking primary dealer bank, a fucking arm of the Fed for fuck's sake. They aren't going to tell you shit muppet!


Rise Of The Machines's picture
Schrodinger's Mar-kat was both long and short at the same time (Dennis Gartman strategy), but only when he observed his trading account and the Qualcomm mechanics resolved themselves, did he realise if he was alive or dead!
ted41776's picture

maffs and charts to describe unicorn fart based monetary system? kudos to you sir, kudos

Quivering Lip's picture

Fuck you and your NON GAAP PE "Goldman" and every other fucking fraud who uses that metric. 

Fuck you and your unemployment number of 4.2% BLS and every other fucking fraud that uses that number.

Fuck you and your 1.7% inflation rate FED and every other fucking fraud that uses that number

LawsofPhysics's picture

the funny thing is that they are trapped by their own lies. Remember this;

"Once unemployment is below 6.5% we will normalize interest rates" - Ben Bernanke

He lied to congress, why hasn't congress taken his fucking head?

Sliced into ribbons's picture

I'll one-up him and say the year-end S&P could be anywhere between 0 and infinity.

DEMIZEN's picture

is it quants turned chemists now looking at hybridization of charge or something?