Much of Stock Price Growth from Corporate Buybacks, Not Better Earnings

Much of Stock Price Growth from Corporate Buybacks, Not Better Earnings

Much of Stock Price Growth from Corporate Buybacks, Not Better Earnings


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)

Stay tuned…


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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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