Latest news with #Kostin
Yahoo
4 days ago
- Business
- Yahoo
Stock Pros See Forecasts as ‘Necessary Evil' in Era of Policy Chaos
(Bloomberg) -- As President Donald Trump awaited his second inauguration in January, David J. Kostin, Goldman Sachs Group Inc.'s chief US equity strategist, had a clear view of what that would mean for stocks: another year of solid gains. Advocates Fear US Agents Are Using 'Wellness Checks' on Children as a Prelude to Arrests LA Homelessness Drops for Second Year He forecast the S&P 500 Index would rise 11% to 6,500 by 2025's end. It didn't take long for his outlook to unravel. China's DeepSeek technology burst the artificial intelligence bubble, recession warnings rang out as Trump unveiled the harshest tariffs in 90 years and the S&P 500 slumped toward a bear market. A week later, Trump reversed and unleashed the best stock rally since the 1980s. As those events unfolded, Kostin felt compelled to change his target a whopping four times over the course of four months. In the past decade, he's made an average of just two changes per year, according to data compiled by Bloomberg. Such is life for Wall Street strategists under the extreme capriciousness of the Trump administration, where global trade policies are set on whims and changed just as randomly. While investors seem to have grown inured to the vacillations — the S&P 500 has churned near a record for the past few weeks — forecasting where the benchmark will be in six or 12 months has become hazardous. 'It's like being on a roller coaster,' said Wall Street veteran Ed Yardeni, founder of Yardeni Research. 'As a strategist, you don't like to change your forecast too often because then you lose your credibility. But in my career, I don't recall so much uncertainty in such a short period of time.' Kostin had plenty of company as he tried to keep up with Trump. In December, the 19 strategists tracked by Bloomberg predicted on average the S&P 500 would rise 13% to 6,614 this year. Oppenheimer & Co.'s John Stoltzfus saw it jumping a Street-high of 21%. Even the most bearish prognosticator, Cantor Fitzgerald's Eric Johnston, expected gains of 2%. By May, the group had on average slashed their outlook by 9% — a faster pace than at the start of the pandemic in 2020. As June started, many had reverted to being bulls. The S&P 500 closed Monday at 6,268.56 points, bringing this year's rally to nearly 7%. Kostin now expects the benchmark to end the year at 6,600, but with Trump's trade policies far from cemented, it's a safe bet the Goldman man may have to act again. 'The shifting tariff landscape creates large uncertainty around our earnings forecasts,' Kostin wrote in a note to clients. 'However, we expect the digestion of tariffs to be a gradual process, and large-cap companies appear to have some buffer from inventories ahead of the increase in tariff rates.' A spokesperson for Goldman Sachs declined to comment. The rapid-fire changes to once stolid forecasts have rekindled an age-old debate about the utility of Wall Street strategists. Generally, the cohort offers fairly similar views — usually between a 0% and 10% annual gain in the S&P 500. Big misses, of which there have been many in recent years, do little reputational damage. 'Most of the time, you look back at the year-ahead forecasts and you laugh because you say, what was I thinking?,' said Anthi Tsouvali, UBS Global Wealth Management's multi-asset strategist. 'But it's very hard to shift to an environment where no one publishes those forecasts, because it's a relatively easy way for people to understand how bullish or bearish you are.' Changing Models In the era of Trump, strategists have had to amend the way they model forecasts. The team at BlackRock Inc. briefly reduced its 'tactical' investment horizon to three months from six-to-12 months, noting the shorter time-frame would better reflect the pressure on US stocks. Tsouvali's team began focusing on granular opportunities among single stocks instead of taking 'very big outright risk' at the index level. Beata Manthey, head of European and global equity strategy at Citigroup Inc., tweaked her forecasting methodology to add a measure of how wars and trade policies would impact stocks. After the wild market ride in April, they now account for a 'geopolitical risk premium,' which includes policy fluctuations as well as volatility linked to conflicts. 'We were in a very scary place back then,' Manthey said. 'Even so, all the big events of this year were absolutely predictable and everybody should have had them in the models, but we underestimated the scale.' Her models now show the market is again too sanguine about a potential trade-driven shock after the rebound to records. With Wall Street forecasts reverting to broadly bullish, 'that's a worry,' Manthey said. Citi's US strategy team upgraded its S&P 500 target to 6,300 in June after slashing it by 11% on Trump's tariff shock in April. Adam Parker, founder of Trivariate Research and ex-Morgan Stanley chief US equity strategist, said gauging the hit from tariffs on corporate profits has made market forecasting particularly challenging. Here, too, Wall Street misfired. Analysts had been cutting profit estimates throughout the first quarter, and by early April, the number of revisions had reached levels usually seen during times of economic duress. Four weeks later, S&P 500 firms had delivered earnings growth double what was expected, data compiled by Bloomberg Intelligence show. 'There are two things you're trying to forecast: one is earnings and the other is the multiple,' said Parker, who has revised his profit forecast three times since April. 'This year, we're unsure of the earnings trajectory even more than normal.' No First-Mover Advantage Former Citi strategist and industry veteran Robert Buckland said Wall Street prognosticators should've shown more resolve in their predictions. Their mistake was taking Trump at his word on the level of tariffs. 'Most strategists came into the year thinking 'take Trump seriously, not literally,' but they didn't stick to their guns and they did take him literally. And that's what got them into trouble,' said Buckland, who served as Citi's chief global equity strategist until 2023. 'I would've gone quiet a bit,' Buckland said. 'When you get a big move like this, there's no first-mover advantage in my experience. It's not really about getting it wrong, it's about what you do when you get it wrong.' One strategist who did hold steady to his optimistic target is Wells Fargo Securities LLC's Christopher Harvey. The bank's head of equity strategy remains Wall Street's biggest bull with his projection that the S&P 500 will rally 19% over the year. At a time when his peers were racing to slash targets in May, Harvey — correctly — expected the White House to take an easier stance on trade and said the market was past peak uncertainty. His prediction proved right, with the Cboe Volatility Index trading well below a peak of 60 hit in early April. For others, though, the threat of Trump upending the world economic order proved too worrisome to disregard at the time. Global investors reflected that panic, slashing exposure to US equities by the most on record in March, according to a Bank of America Corp. survey. At Ned Davis Research, chief US equity strategist Ed Clissold called forecasting a 'necessary evil.' 'President Eisenhower once said, 'In preparing for battle I have always found that plans are useless, but planning is indispensable,'' Clissold said. 'We have a similar attitude when it comes to our forecasts — they are helpful thought processes, but we recognize they will need to be adjusted throughout the forecast period.' --With assistance from Michael Msika and Lu Wang. Thailand's Changing Cannabis Rules Leave Farmers in a Tough Spot The New Third Rail in Silicon Valley: Investing in Chinese AI 'The Turbulence Is Brutal': Four Shark Tank Businesses on Tariffs 'Our Goal Is to Get Their Money': Inside a Firm Charged With Scamming Writers for Millions Will Trade War Make South India the Next Manufacturing Hub? ©2025 Bloomberg L.P. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
AU Financial Review
11-07-2025
- Business
- AU Financial Review
Earnings, not valuations, are key hurdle for US equities: Goldman
David Kostin, Goldman Sachs' chief US equity strategist, said he pushed back against clients' concerns – because of rising valuations and narrow breadth – over his upward revisions this week to his S&P 500 targets. In a note, Kostin said clients should refocus. 'Rather than valuations, we view earnings as the main source of uncertainty around our forecast.' He expects the benchmark to reach 6400 over three months, 6600 over six months and 6900 over 12 months. It closed the week at 6259.75.
Axios
09-07-2025
- Business
- Axios
Goldman Sachs gets bullish ahead of growth cycle
Goldman Sachs is raising its year-end price target for the S&P 500, even as it has trimmed expectations for corporate earnings growth. The call is based on earlier and deeper interest rate cuts from the Federal Reserve, corporate resilience, lower bond yields and investor positioning (aka vibes). Why it matters: Investing for an environment priced for an economic expansion looks very different than investing to hedge against potential weakness. What they're saying: David Kostin, chief U.S. equity strategist for Goldman Sachs, tells Axios cyclical stocks are implying economic growth of 3%. "When investors believe the economy is rallying…the cyclicals outperform the defensives a lot," he says. Zoom in: In terms of sector performance, Kostin is bullish on three things. Software and services, which he sees being bolstered by the expansion of artificial intelligence and application software. Alternative asset managers, as the major banks have rallied "a lot, but the alternative asset managers have not," he says, noting these firms could continue to benefit from an improved capital markets backdrop. Companies with high floating rate debt, which would benefit from lower bond yields and lower interest rates. Zoom out: Goldman chief economist Jan Hatzius sees three rate cuts this year off the back of economic growth, combined with cooling inflation that allows the Federal Reserve to cut rates. Stagflation isn't a concern because tariffs will be a one-time inflation hike, according to Kostin. "No recession, equity prices rally, that is our baseline." Yes, but: There are still downside risks, especially given the market is pricing for a level of growth that doesn't align with the latest GDP data. Just because the market is pricing for economic growth doesn't mean it's guaranteed, Kostin notes. On tariffs, he says we still need clarity on who's paying them to be confident in broad earnings. The thin market rally could be an issue, with Kostin adding this is "one of the narrowest drivers of a rally in the last 50 years outside of recession."
AU Financial Review
08-07-2025
- Business
- AU Financial Review
ASX set for muted open amid US trade clouds
Goldman Sachs equity strategist David Kostin has turned bullish on the outlook for the S&P 500. In a note, Kostin said the S&P 500 recently climbed to a new record and further upside would be consistent with the historical playbook following the resumption of Federal Reserve cutting cycles. 'Our new 3- and 12-month returns forecasts are +3 per cent and +11 per cent, indicating S&P 500 levels of 6400 and 6900 (previously 5900 and 6500). Our 6-month return forecast, corresponding with year-end 2025, is +6 per cent to 6600 (previously 6100). Our year-end S&P 500 forecast ranks at the upper end of the distribution of strategist estimates.' Kostin also said earlier and deeper Fed easing and lower Treasury yields than we previously expected, the continued fundamental strength of the largest stocks, and investors' willingness to look through likely near-term earnings weakness support our revised S&P 500 forward price-to-earnings forecast of 22 times (from 20.4 times). 'Our economists' revised Fed forecast calls for three sequential 25 basis point cuts this year, beginning in September, followed by an additional two quarterly cuts in 2026. As a result, our rates strategists expect the nominal 10-year US Treasury yield to end 2025 at 4.2 per cent (vs. 4.5 per cent previously). 'In our macro valuation model, every 50 bp decline in real yields is associated with a roughly 3 per cent increase in S&P 500 forward P/E, all else equal. In addition to the improved outlook for interest rates, the strength of first-quarter earnings results boosted our confidence that the largest stocks will sustain current investor expectations for their long-term growth for at least the next few quarters, helping support valuation for the aggregate S&P 500 index.'
Yahoo
08-07-2025
- Business
- Yahoo
Why 2 More Experts Just Raised Their S&P 500 Targets
Wall Street continued to look past tariff uncertainty on Tuesday, with analysts at two major firms lifting stock market price targets they slashed just months ago. Bank of America analysts, led by Savita Subramanian, on Tuesday raised their year-end S&P 500 target to 6,300, implying a 1% gain for the index through the remainder of the year. BofA entered 2025 with a target of 6,666—one of the highest on Wall Street—but cut its forecast to 5,600 after President Donald Trump's 'Liberation Day' tariff announcement roiled markets. 'The resiliency of large companies in the face of macro uncertainty leads us to lower our equity risk premium (ERP) assumption,' Subramanian said. The firm's ERP estimate—down to 200 basis points (bps) from 250 bps—is well below the post-Global Financial Crisis average of 540 bps, 'but a lower ERP is justified today given the index's shift toward a higher-quality, more asset-light index.' That is, tech companies with healthy balance sheets, high margins, and strong cash flows make up more of the index now than in the past. Goldman Sachs' David Kostin lifted the firm's year-end target to 6,600 from 6,100. Kostin in January forecast the index would end the year at 6,500, but cut his estimates as Trump's tariffs ratcheted up economic uncertainty. Goldman analysts expect Fed rate cuts to help boost stocks in the second half of the year. The bank's economists expect officials to make three sequential 25 bps cuts starting in September, followed by two more quarterly cuts next year. Lower rates should increase the S&P 500's price-to-earnings ratio. Goldman expects S&P 500 earnings to increase 7% both this year and next, but Kostin notes confidence in that forecast is low due to the ever-changing tariff landscape. 'Recent inflation data and corporate surveys indicate less tariff pass-through so far than we expected,' he wrote. He also noted that tariffs are expected to be absorbed gradually and large-cap companies have built up an inventory buffer that could delay their impact. Stocks have rebounded sharply since President Trump paused the 'Liberation Day' tariffs that tanked stocks in early April. Since closing at a year-to-date low on April 8, the S&P 500 has rallied 25%, one of the biggest 3-month rallies of the last 50 years and 'the sharpest outside of a recession in 20 years,' according to Kostin. Subramanian acknowledges it may be difficult for the index to sustain the breakneck rally. Tech earnings—'the meat of corporate profits'—are expected to decelerate, and the Federal Reserve, in BofA's view, appears unlikely to cut interest rates soon. Kostin notes the recent rally, driven by soaring tech stocks like Nvidia (NVDA), Meta (META), and Broadcom (AVGO), has 'lowered our market breadth indicator to one of its narrowest readings during the last few decades and its lowest level since 2023.' That could set the index up for either a 'catch up' by laggards or a 'catch down' by market leaders, he said. The former is more likely than the latter due to resilient earnings, the likelihood of Fed cuts, and neutral investor positioning, according to Kostin. 'As the perceived economic and earnings risk from tariffs continues to fade and the Fed resumes its cutting cycle this fall, investors will likely continue to search for laggards that have not participated in the rally,' he wrote. Read the original article on Investopedia Error while retrieving data Sign in to access your portfolio Error while retrieving data Error while retrieving data Error while retrieving data Error while retrieving data
