Goldman’s Kostin: Stocks Will Fall -8% Further Before Year-End

Goldman’s Chief Equity Strategist, David Kostin, is sticking to his year-end target on the S&P of 1250.  He says concerns over the fiscal cliff and tax law changes should keep the market under pressure (via Business Insider):

“Debate regarding a two-year extension to the 2001/2003 Bush income tax cuts was not resolved until December 17th, 2010. Last year’s decision to extend payroll tax cuts was not finalized until December 23rd, 2011. The current challenge is significantly more complex. Divergent views on tax policy, defense spending, and entitlements need to be resolved in a short lame-duck session of Congress. Political platitudes about compromise will abound during the coming weeks but some disagreements will surely arise. We assign a 55% likelihood that an agreement is reached by year-end.

…Capital gains taxes are scheduled to rise at the start of 2013 from a 15% rate to 23.8% (20% plus a 3.8% tax associated with the Affordable Care Act). The nearly 9 pp hike in capital gains taxes is similar in magnitude to the 9 pp rise in 1970 and the 8 pp rise in 1987. In both prior cases S&P 500 posted negative returns in December as investors locked-in the lower tax rate. The S&P 500 fell by 1.9% in December 1969 and 2.8% in December 1986 running counter to trend given December has the second highest average monthly return (1.5%) and a 75% hit rate of positive return since 1928.”

This is in stark contrast to his 2013 outlook.  Kostin has a S&P target of 1575 or 26% higher than his 2012 year-end target.


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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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  • rp1

    It’s all nonsense. I would bet the opposite both ways.

  • Alberto

    “It’s tough to make predictions, especially about the future”

    Yogi Berra

  • Manuel Blay

    A primary bear market was signaled by the Dow Theory on Friday Nov 16. While nothing is carved in stone, technically the odds favor further losses in the market.

    Dow Theorist Schannep (whose track record is outstanding) wrote that the decline following a primary bear market signal averages 14.8. Thus, Kostin may be right this time.

  • william

    I don’t understand how anyone can pay attention to a forecast of 1250 with a chaser of 26% higher in 2013. For me, that’s akin to saying “it may go down, or it may go up, one of the two”.

  • AWF

    From the Kitchen Table: Thanksgiving Wk

    Short-Term Trend: Rally to 1406 probable on SP5

    SP5-ITerm/Long-Term Trends: Down–probable beginning of Bear Mkt
    Price projection gives 1089 on SP5 as Low/Bottom–Aug/Sept 2013

    Bond/Bond confidence ratio: Safety–No recommendation-Bonds are fully priced–find shelter someplace else.

    International Markets:
    Germany,Korea,Emerging Mkts,Canada-On Sell–find shelter someplace else

    SP Index: On Sell
    SP5LargeCap,SP4MidCap,SP6SmallCap–find shelter someplace else

    DJTrann: On Sell—Industrial Materials: On Sell

    Equal Weight Index: On Sell : RSP,$XVG–find shelter someplace else

    Thoughts: Sell into this Short-Term Rally NOW or at Year End

    Thoughts: Hold Cash

    No recommendation to buy or sell
    Seek psychiatric help before Investing

  • http://pragcap Michael Schofield

    Bonds are pricy, slow growth here and everywhere, margins under pressure. SPY 1600 or 1100 not likely IMO but the cliff is somewhat of a wild card. Maybe we are at the top of a 100 point channel?