David Kostin, Goldman’s Chief US Equity Strategy has been pretty bullish in recent years and despite some bumps in the road he’s been right.  But the strategist is singing a bit of a different tune these days.  He’s growing increasingly concerned about some negative trends that could send the S&P 500 below 1,250 (via Business Insider):

“Kostin said there were three main reasons for his call:

  1. The U.S. economy is stagnating, growing below trend.
  2. In a weak economic growth environment, markets historically have a flat multiple
  3. 2012 is expected to see earnings growth of only 3 percent.”

The risk is likely skewed to the downside here as well. Since profits have been largely driven by the budget deficit in recent years and the risk of spending cuts looms we could very well see austerity lead to substantial profit declines.

See the full Kostin interview here:

Source: Bloomberg



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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • MikeToo

    Cullen, Would you say that anything under a 1 Trillion dollar deficit is austerity?

  • LRM

    Good interview with good pointed questions. Thanks for posting.
    After reading the the Carmen Reinhart financial repression piece and listening to Kostin what is an investor to do as we get negative real returns on fixed income as a hidden tax and then the good chance for capital depreciation from Equity from here to the end of the year. VII`s SDS may be the place after all!!!!

  • anon

    You can’t think that way – its all relative. If the government cuts $200 billion p.a. in spending (or tax increases) that’s $200 billion less in the private sector, which will have a material impact. It doesn’t matter much that the deficit may still be large.

    This is the thing the Europeans don’t get – they are focused on getting cheating taxpayers to pay what they should be. That’s all good from a “fairness” perspective, but they are still removing funds from the private sector and it will have a negative impact – it really doesn’t matter whether its “fair” – it will hurt their economies…

  • Double Eagle

    “VII`s SDS may be the place after all!!!!”

    With March ES spiking to 1385 it looks like the bull is alive and well. This market just won’t go down (I hope I’m wrong.)

  • John

    Goldman employees are encouraged to rip off clients and public so why would S&P fall???

    R we Muppets??

  • Bill Downey

    As long as there are 500 companies doing well — and 30 big companies doing well, the Dow and S&P will continue to move higher in the long term. Apple is the latest example. Its like 17% OF THE NASDAQ (Don’t hold me on the number, but you get my point).

    Even at the worse of a depression — they will find 500 companies doing ok. So i don’t think the index’s are a mirror of what is really going on — but a cherry picked view of what a small portion of business is doing.