Much of Stock Price Growth from Corporate Buybacks, Not Better Earnings
$DIA, $SPY, $QQQ, $VXX
Earlier this month, Goldman Sachs Group Inc. issued a dire outlook for Q-3 earnings. Now the firm is darkening its prediction all the way through Y 2018.
“Low interest rates and peaking margins constrain profit growth in information technology, financials, and telecom, and drive the reduction in our index-level earnings per share (EPS) forecast,” said the GS team, led by Chief Equity Strategist David Kostin, Monday. “Financials and information technology, the two largest S&P 500 sectors based on EPS contribution, have both registered disappointing operating EPS growth in 2016 YTD.”
Goldman’s (NYSE:GS) Kostin and his team now expect earnings to increase 5% this year, 10% in 2017, and 5% in Y 2018, with expected EPS at $105, $116, and $122, respectively. Before the new outlook, the GS predicted EPS to hit $110, $123, and $130 in those years.
The Silver Lining is that Goldman did not lower its price targets for the S&P 500 in those frames, continuing to expect the index to trade at 2100 by the end of this year, and 2200 in Y 2017 and 2300 in Y 2018.
Much of that price growth is due to to corporate buybacks, though, not better earnings.
“We forecast S&P 500 firms will return more than $1 trillion to shareholders in 2016 with buybacks growing by 7 percent to $600 billion,” Mr. Kostin and his team wrote. “Corporate buybacks continue to represent the primary source of demand for US equities.”
Monday, the US major stock market indexes finished at: DJIA +77.32 at 18222.96, NAS Comp +52.42 at 5309.83, S&P 500+10.17 at 2151.33
Volume: Trade was light with about 779-M/shares exchanged on the NYSE
- Russell 2000 +8.0% YTD
- NAS Comp +6.0% YTD
- S&P 500 +5.3% YTD
- DJIA +4.6% YTD
|HeffX-LTN Analysis for DIA:||Overall||Short||Intermediate||Long|
|Neutral (-0.02)||Neutral (-0.02)||Neutral (-0.15)||Neutral (0.11)|
|HeffX-LTN Analysis for SPY:||Overall||Short||Intermediate||Long|
|Neutral (0.01)||Bearish (-0.28)||Neutral (0.02)||Bullish (0.27)|
|HeffX-LTN Analysis for QQQ:||Overall||Short||Intermediate||Long|
|Bullish (0.29)||Bullish (0.29)||Bullish (0.29)||Bullish (0.29)|
|HeffX-LTN Analysis for VXX:||Overall||Short||Intermediate||Long|
|Bearish (-0.45)||Very Bearish (-0.61)||Bearish (-0.41)||Bearish (-0.33)|