Why Goldman Refuses To Raise Its S&P 1250 Year End Forecast

Tyler Durden's picture

The S&P 500 is at its 2012 highs, and rapidly approaching all time highs, even as nothing has changed over the biggest near-term challenge facing America: the fiscal cliff. Ironically, with every tick higher in the market, the probability that Congress will come to a consensus over what would be a haircut of up to 4% to next year's GDP as soon as January 1 2013 gets smaller. Why - the same reason that Spain is unlikely to demand a bailout now that its 10 Year bond is back to the mid 6% range (ironically on expectations it will demand a bailout!): complacency - both by investors, and by politicians. After all, it's is all a matter of perception, and the market is seen to be "perceiving" an all clear signal. It means that the impetus to do something constructive simply does not exist, as we explained recently in the case of Spain (and Italy). It also means that Congress has no reason to be proactive about the biggest threat facing the economy: just look at the S&P - it sure isn't worried, and the market is supposed to be far more efficient than elected politicians. At least on paper. This line of thinking is also the reason why Goldman's head of equity strategy David Kostin (not to be confused with the person he replaced: permabull A Joseph Cohen, who off the record sees the S&P rising to 1600 or more) refuses to raise his year end forecast for the S&P, which has remained firmly at 1250 for the entire year. More muppetry, more dodecatuple reverse psychology, or is Goldman telling the truth? You decide.

From Goldman's David Kostin:

The ‘fiscal cliff’ and downside equity risk: Why we maintain our year-end target of 1250

Why are we maintaining our year-end forecast in spite of the market’s recent rally back above 1400, the positive developments in Europe, and tentative evidence the US economy may be sprouting “green shoots”? A look at the 2011 trading pattern of the S&P 500 explains the reason for our belief that the market has an asymmetric risk profile and offers more downside risk than upside opportunity. Political realities and last year’s precedent suggest the potential that Congress fails to reach agreement in addressing the ‘fiscal cliff’ is greater than what most investors seem to believe based on our client conversations. Scenario analysis in Exhibit 4.

Two of the three pillars of our 2012 framework for analyzing the US equity market have stood firm, but one has not – valuation. Because consensus profit forecasts have been steadily reduced since the start of the year, the positive index returns have stemmed from P/E expansion.

Of our three-part framework, we have the highest conviction in our earnings forecast followed by our economic outlook. We have the lowest confidence in valuation given the number of policy and political variables.

The ECB’s early August promise to provide sufficient funding to prevent the collapse of the Euro coupled with Chancellor Merkel’s supportive comments of ECB policy lowered global risk premiums by thinning the left tail of possible negative outcomes for the European financial system. The resulting P/E expansion explains the 4% surge in S&P 500 during the last two weeks. The index has now advanced 12% YTD and ranks among the top performing bourses in 2012. But P/E multiples can just as easily compress as expand.

Numerous uncertainties exist and any one of them could spark a reversal of the recent equity market rally. Known risks include the US fiscal cliff (federal debt ceiling tax policy, sequestration); US election; China growth; European political, sovereign debt, and bank funding crises; and Iran/Israel tensions. Our year-end 2012 target of 1250 is nearly 12% below the current index level. Why are we maintaining our forecast in spite of the market’s recent rally back above 1400, the positive developments in Europe, and tentative evidence that the domestic economy may be sprouting “green shoots”?

A look at the 2011 trading pattern of the S&P 500 explains the reason for our belief that the market has an asymmetric risk profile and offers more downside than upside. Last year the deadline for Congress to raise the federal  debt ceiling was known months in advance. Nevertheless, Congress was unable to reach an agreement that satisfied all factions. Investors were stunned and the S&P 500 plunged 11% in 10 trading days (and more than 17% from the level one month prior to the deadline). Eventually Congress reached a compromise on raising the debt ceiling.

We believe the uncertainty is greater this year than it was 12 months ago. We are in the midst of an acrimonious election season. The likelihood that sitting Representatives and Senators will leave the campaign trail to sit in Washington, DC to negotiate and cast votes on controversial issues involving taxes, unemployment compensation, and sequestration seems remote, in our view. If no agreement on ‘fiscal cliff’ issues is reached before the election, it will require a lame duck Congress to address the topic.

Although the official debt ceiling is likely to be reached in December, Treasury legerdemain will allow the government to be financed under the limit until February 2013, by which point the debt ceiling must be raised.

Political realities and last year’s precedent suggest the potential that Congress fails to reach agreement in addressing the “fiscal cliff” is greater than what most market participants seem to believe based on our client conversations. In our opinion, equity investors seem unduly complacent on this issue. Portfolio managers have been swayed by hope over experience.

What is the downside market risk if Congress does not address the “fiscal cliff”? Goldman Sachs US Economics research estimates that the impact of the fiscal cliff would weigh on real 2013 GDP growth by nearly 4 percentage points if scheduled year-end policy changes were to take effect permanentl. Applying this to our US economists’ forecast, GDP would contract by roughly 0.4% in 2013.

Our current baseline 2013 GDP growth forecast of 2.0% assumes the following: payroll tax cuts expire after 2012, jobless benefits are phased down to a maximum of 59 weeks, income tax cuts are extended through 2013, and automatic spending cuts do not take effect. This fiscal drag represents roughly 1.2 percentage points. Conversely, if everything is extended, the effect of Federal, state, and local fiscal policy on GDP growth would be -0.5 percentage points and 2013 GDP growth would be about 2.7%.

The sensitivity of our sales, margins, and earnings models suggests a 100 basis point shift in 2013 GDP growth rate equals roughly $5 per share in S&P 500 EPS. We currently forecast 2013 EPS of $106. If nothing is done to address the ‘fiscal cliff’ and the US economy contracts by 0.4% the resulting EPS would equal $93, a year over year decline of 6% from $100 of EPS in 2012. Similarly, if everything is extended and the economy expands by 2.7%, then 2013 EPS would equal about $110, reflecting year over year growth of 10%.

Assigning a P/E multiple to various ‘fiscal cliff’ and earnings scenarios is difficult because ultimately we expect Congress will address the situation. But investors must confront the risk they may not act until the final hour.  Exhibit 4 contains a matrix of potential year-end 2012 S&P 500 index levels based on different ‘fiscal cliff’ resolutions and multiples. Our 1250 target reflects our ‘fiscal cliff’ assumption and a P/E slightly below 12x. Full expiration with P/E of 12x equals 1120 (-21%). A 14x P/E and full extension implies 1540 (+9%), but the two outcomes are not equally likely in our view.

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Silver Bug's picture

Rule number one: Never believe anything Goldman says.

Rule number two: Refer to rule number one.



fonestar's picture

I am not trying to be facetious but rather a serious question, why does Goldman have ANY clients left at this point?  I mean do they have a tiered client list?  Those that get the good information and "everyone else" who gets the shitty deal?

MeelionDollerBogus's picture

Ya, they have clients who are so dumb they can't see the obvious and so scared they think that Goldman's ripping them off is actually a good deal, that anywhere else would rip them off even more.

From what I can see, all the things I've heard, I'd say investing in gold, holding shares of SPY bought from a dip, holding vxx ONLY during the last days of highs of SPY and/or shorting SPY would be wise, practicing options trading to ensure you can avoid use of margin yet still get a good deal on theta vs the price swings from a given ticker ... but hold that gold bullion. Some silver too.

Ivy is one I've heard is at least CONSIDERING gold. They are scared of it and don't understand it but are willing to hold it from time to time. The rest are GARBAGE. I hear nonsense too frequently from these so-called "advisors" still telling people high-yield corporate debt is amazing and that muni-bonds are amazing. It's insane. They will bankrupt their clients.

fonestar's picture

Haha munis, why not just go greek and double down?  I guess some people need to be cannibalized in order to achieve martydom.  Myself; physical gold, physical silver and cash in hand.

Precious's picture

Goldman's is the kind of patently obvious thinking perpetuated by a paternalistic culture that elevates people based on SAT scores, GPAs, cronyism and nepotism.  Linear garbage-in, garbage-out.  Meanwhile, the most valuable technology company in the world was created by an acid-tripping, drop-out adopted son of a machinist.

fonestar's picture

Thanks for the edit.  Wasn't sure if I was the dimwit or Goldman?  No junk for you!

AlphaDawg's picture

Dandy Talkin

Taking advice from GS.

50% of the time you say bullshit and 50% you agree.

Where the fuck is your consistency? 

Your website is getting worse and worse

The muppetts reading are going to get skinned, short it of you want, but if you get fucked, dont say you werent warned. Wankers

Muppet of the Universe's picture

How many times did I tell you fuckers in the last 3 weeks, this is QE4..  and you fuckers plugged your assholes with your thumbs and gtfo.

Now we are back here looking at an increasingly deminishing QE power... likely halfway or less to the QE4 top.  & when we hit this top, we will struggle, and then fall, and the fall will be pathetic.

Forget shorting stocks as a profitable practice.  According to the fibonacci sequence between S&P/Dow and 10/30 Bonds, the market is set to reach infinity as long as the Fed continues its silent QE program.


& fuck goldman and their stupid retard attempt to call the precise level.  all one can do it predict patterns.  it's fucking fractals u fucking goldman dipshits.

& fuck ZH posters with their diehard the world is collapsing tomorrow mentality.  You were fucking wrong yesterday, and you were wrong in 2008, and you were fucking wrong 10 years ago.  Now either turn on Alex Jones and stfu or  Grow the fuck up and begin thinking clearly.

DeadFred's picture

So it's fractals? You don't think the underpinning of chaos theory are a tad stretched in this market? What sort of a fractal pattern are you seeing in the last week and a half with the major index levels drawing a straight line just below rising resistance on ultra low volume? Have you or has anyone seen a trading pattern like this, ever? I don't have the sources to check back a long time but this is the most manipulated time period I can see for the S&P.

If the market is that controlled why would you think it will keep going up and up when more money can be made by the manipulators using the old pump and dump strategy? As long as they have controll they will continue to pump to draw in more money, dump to get the sheep to cash out at the bottom then repeat. As long as they can keep control.

Goldman is just prepping the sheep on why they should give over their pension money to the squid come early next year. That assumes the missiles or some other black swan don't fly before then.

Ponzi_Scheme's picture

You can be sure that the chosen get the right info and the goyem get the shitty deal. Their rabbis have told them since childhood it is permissible... Eric Holder is okay with that too...

JR's picture

Lewrockwell.com (video): Marc Faber Estimates the S&P Breaking Down by 150 Points Sparking QE3 by Wall Street Pit

August 18, 2012 -- Widely followed strategist Marc Faber spoke to CNBC’s Fast Money and said that investors should beware of a false rally in the late summer or early fall. According to Faber, catalysts are currently in place that could trigger more market upside. However, he believes any advance will be only marginal and certainly not based on market fundamentals. At 1450-1500, Faber says the S&P will be at the top of the range. From those levels he sees bears taking the market down.

“I think the market is going to break out of this range. My guess would be on the downside and not on the upside”, Faber said. “I think we are already overboard here. How low will we go? We may have seen the highs for the year. Maybe we make a marginal new high and then we drop again, but I think 2013 will be a difficult year for equities.”

The author of the “Gloom Boom Doom” newsletter estimates the S&P 500 breaking down by 150 points, or 10%, sparking QE3 from the Fed.


dexter bland's picture

That sounds about right to me. Clearly the bulls have an exit strategy which involves trying to push the market to new highs. At that point technical traders and the FOMO retail crowd will jump back in, the media will be flooded with analysts tipping new upside targets, volumes will increase and prices should start jumping ahead at a faster rate. But will there be any follow through?

I suspect we may be looking at a repeat of 2007 where a few of the leading stocks pushed the DJIA on to new highs but the majority of stocks and the broader indices stalled as the smart money was distributing. So AAPL $1000 perhaps, but still a rally to view with suspicion.

But I disagree on QE3. I believe the Fed has exhausted their ammunition, and now there is only talk. Talk can backfire as when Draghi managed to send US treasury yields flying that the Fed has spect hundreds of billions trying to reduce. Just shows how little they understand market forces. China is the same, their corporate sector is riddled with debt as the result of the last stimulus. Now they need foreign investors to recapitalize, they can't afford another stimulus, but can afford talk.

The market is finished when investors begin to realize that central banks are revealed like the Wizard of Oz.

Pseudolus's picture

At least we have honest markets in the east to turn to - no chance of manipulation in the SIBOR

Aquaman's picture

This is a tough one.  Has GS reached the point where they know that everyone does the opposite of what they say.  Could this be a double double cross?  Or could they be makinus think this is a double double cross and it s really a double double double cross?  Maybe one should just ignore them altogether to be safe and get thier advice from a reputable organization (be advised...there are non of those anymore, so.....).

sablya's picture

It seems like a well-reasoned and reasonable article to me too.  1250 is higher than I would expect, but it's a good start.

AlphaDawg's picture

On what basis do you say this?

Gimp boy

diogeneslaertius's picture

a myriad of salient vectors merging into one controlled pressure cooker scenario

solgundy's picture

what does Diane Swonk say about this????

mkhs's picture

Explain why I would care?

zhandax's picture

He either left off the /sarc or he is one of jamie's new trolls; lloyd and barry are still scuffling over who gets to hire her.....

Ranked among the top forecasters in the United States and the most influential women in business, Diane Swonk is an advisor to the Federal Reserve Board and regional Reserve Banks and a member of the Congressional Budget Office's panel of economic advisors. A clinical professor in DePaul University's M.B.A. program, she also serves on the City of Chicago Climate Change Finance Committee and the Chicago Conservation Center advisory board.

mkhs's picture

Thanks for the information.  I really was just varying the classic "Who cares?"  Which is the crux of the matter.  Even the pronouncements from almighty ben are meaningless.  It is serious so everyone must lie.

francis_sawyer's picture

 "Why Goldman Refuses To Raise Its S&P 1250 Year End Forecast"


More muppets to shear... Any more stupid questions?... We're jews...separating you from your money is what we're about...& we've gotten pretty good at what we do througout the annals of history... (Junk away [truth bites])...

Edit: Yeah, as suspected, here come the little faggoty junkers... Well ~ junks notwithstanding, it doesn't change the fact that Israel is a warmongering Apartheid state (& that everyone at GS from Corzine, to Paulson, to Blankfein, & their partners in crime Bernanke, Geithner, Greenspan & countless others to name have been at the epicenter of the financial raping & pillaging of, not just of America, but the ROW [death tolls included])...

I suppose you come down on the side of 'supporting' those atrocities... You know... GOD'S WORK & all... Carry on...

Come on!!!... I'm waiting for some more junks here... Don't you believe that if you can successfully contact all your cronies and get a JUNK ORGY going here on ZH against francis_sawyer, then you'll have successfully re-routed world opinion towards your cause???

While you're at it, why not drop a few comments about those bad tear our wrists who boarded ayer planes armed with concealed package openers a decade ago, and then flew them into landmarks... Those were some bad MF'ers, right?... We ought to write blank checks for as far as we all can see to stop those dudes... Come on ~ I really want to know more about the existential threat they pose (vs. financial tear our rism)...



madridisburning's picture

You need to change suppliers. This seems to have been a particularly bad acid trip for you. The Jews are everywhere. Very sppoky.

francis_sawyer's picture

Trust me... I ain't the one stealing money out of your wallet...


- Never had occasion to

- Never have done it

- Never would even consider scheming to do so

Acid trips notwithstanding...



Hell ~ as far as anyone knows, it's probably the @sshole ALEX JONES & his bunch of losers responsible for the JUNKS... He's a paid flunky for the SAME ONES who convinced all you suckers to vote for the Kenyan in 2008 (how DUMB do you feel now?)... Or, who are SWINGING their big circumcized dicks to get you to vote for Romney 2012 [Netanyahu's BFF]... (which ~ will not only make you feel DUMBER in the years to come, it might even get you a ticket on a railroad car to some fenced in real estate... Whereby ~ if you still don't like what I'm saying, you can punch me in the face like the Reverend Smithy)...


I ain't got time 4 this shit... (as the link above gives testimony to)...


DeadFred's picture

This level of agressive paranoia suggests crystal meth not acid. If he starts arguing with inanimate objects it will be pretty conclusive.

Of course it could be he just hasn't had his coffee and bear claw yet this morning

antidisestablishmentarianismishness's picture

Don't have any cronies and not really interested in causes, just felt like junking you because you're an asshole is all.

diogeneslaertius's picture

GDP growth forecast is as real as a unicorm bringing you gold and heirloom seeds


Crisismode's picture

Just the other day, a unicorn stopped by and unloaded a stack of Gold American Eagles and a box of 200 heirloom seed packets.

So, you're saying he didn't visit you too?

You probably forgot to leave that trail of Skittles from the roadway up to your front door.



Nacho Libre III's picture

Hmmmmm... the market is entirely controlled by longish machines, and computers, and gs is sounding shortish, time to load up on tna, and wayyy out of the money short dated fas calls... spx to the moon. Time for nachos nap

Atomizer's picture



Rule's 2 Da game of Hoez!!! 

  1. Alwayz make them need and depend on you so you have power over them. (Power is control) 
  2. Make them understand that you don't need them they need you, they are replaceable. Never let them no if you need them deep down inside. 
  3. Never let no1 get away with sneakin anything cause once they feel they can get away they will alwayz scheme.
  4. No matter how much you like or care for 1 or any of them, don't trust none of them. (Like Scarface, who do I trust?? Me that's who..)
  5. Alwayz stay 2 step's ahead of the game you have them playin..
  6. Don't let them no all your Plan's. But alwayz try 2 no there's.
  7. Make sure you own there mind's, body's, and soul's. (N test it out every often 2 make sure.)
  8. Keep your bi[?] on the low as possible when it come's 2 family and hater's. (cause you can't trust none of them)
  9. Alwayz try 2 no whatz goin on..(Make them tell on each other)
  10. Give respect when respect's due..(Follow these rules and you should b gucci.)


vbone's picture

oh my lord bros, this iz insanely bullish

sablya's picture

Just when you think you can safely fade them every time - bang, they throw a fast ball right down the middle.  Perfect call.  

MeelionDollerBogus's picture

Great way to keep track of this cyclic trending to repeat the rise & cliff - http://stockcharts.com/h-sc/ui?s=SPY&p=D&yr=3&mn=0&dy=0&id=p17852235125 also short URL http://scharts.co/P5ze1O

orangegeek's picture

Goldman forecast 25% growth in 2011.  Outcome?  ZERO percent growth.




SP500 is up almost 13% this year - in this economy too.  I guess Goldman has the algos programmed for 1250.

KarlGDenninger's picture

Biff the angel spoke to me. We must get to work. The lord has promised me 44000 faithful. We must start digging my brothers. The end is near....repent.

Charlie's picture

This probably means the S&P will set a new high next week. 

cranky-old-geezer's picture



The S&P 500 is at its 2012 highs, and rapidly approaching all time highs, even as nothing has changed over the biggest challenge facing America: the fiscal cliff.

Nope, fiscal situation isn't the biggest challenge, sagging economy is the biggest challenge.

I don't give a shit about the government's fiscal situation, and don't know anyone who does.

sablya's picture

That's because you're a cranky old geezer.

madridisburning's picture

The economy is running entirely on fiscal stimulus of one kind or another. No fiscal stimulus, and you get a complete flatline like Europe. We just continue to steal from our children, or we will not be able to buy our 5th iPhone.

LawsofPhysics's picture

Blah blah blah, are you a man or a muppet? In a lawless world, if you can't physically secure it, you don't fucking own it.

slewie the pi-rat's picture

davidKostin = the squid's token doomer

slaughterer's picture

Kostin was on Bloomberg last week spewing the Abby Joseph Cohen message about buying equities for 8% annual returns, but snuck a few side remarks in about it not being a good idea to buy right now as we are at the top of Kostin's traidng range.  Goldman has a marketing problem with Kostin: either let him go on full on doomer prognoses or do not let him talk in public, because when they got him trying to spew the Cohen line, he looks like a weasly hypocrite.  

slaughterer's picture

Everybody at Goldman has a different take on everything.  It is like an Ivy League Faculty Club there, with the heated debates about multiples and appropriate VAR, etc etc.   The company no longer has a unified identity or strategy.  Employ me to replace Lloyd and I would bring a unified strategy to make as much money as possible destroying every market participant through disinformation, front-running and game analysis.  

Meesohaawnee's picture

does it really matter? all you need to know is the manipulation and to how far they want to take it. period

Ponzi_Scheme's picture

Let's all read that again shall we. Pause at the point where he predicts 10% (earnings ?.. Top line ?) SP growth. That is one bold claim with all trend lines pointing down... Except multiple xpansion..

I'm going with garbage article designed to bedazzle muppets...

dogismyth's picture

Who gives a phuck what goldman has to say??  The only reason they issue their mind boggling articles/assessments/analysis is to confuse you further.  You're obviously already confused because you cannot even choose what is worthy for print.  So they print, and you reprint....and offer up ridiculous and egotistical comments.

I guess they are winning.

GNWT's picture

muppet master, 


a joseph cohen is a woman dude...has been for 40 years on the street...or do you knpw something i don't...

 A Joseph Cohen, who off the record sees the S&P rising to 1600 or more) refuses to raise his year end forecast for the S&P


FerretBrain's picture

If you're gonna slam someone for getting facts wrong, at least make sure you've taken the time to read the passage correctly.  You screwed up in this case...

To wit:

This line of thinking is also the reason why Goldman's head of equity strategy David Kostin (not to be confused with the person he replaced: permabull A Joseph Cohen, who off the record sees the S&P rising to 1600 or more) refuses to raise his year end forecast for the S&P, which has remained firmly at 1250 for the entire year.

The reference to AJC is in parens -- remove the portion that is in parens and it reads:

David Kostin refuses to raise his year end forecast for the S&P, which has remained firmly at 1250 for the entire year.

Better to remain silent and be thought a fool than to open your mouth and remove all doubt.