Goldman Sachs’ David Kostin warns investors may be too concerned about downgrades to earnings forecasts. In a note to clients, the team led by Kostin sees S&P earnings-per-share growth of 5% next year, climbing to $237.
Yahoo Finance’s Josh Schafer joins the Live show to discuss Kostin’s latest note.
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Video Transcript
– Well, investors are gearing up for what is going to be a very busy week. We’ve got new data coming out on inflation. We’ll also get a look at how retailers are holding up and even a possible government shutdown could all be weighing on the markets this week.
But we want to focus on today’s market commentary here. More companies are striking a cautious tone this earnings season over the looming threat of an economic slowdown causing investors to become more concerned over the weakening outlook for US corporate earnings. But investors, maybe they shouldn’t be as worried as they are right now. Yahoo Finance markets reporter, Josh Schafer, joining us here at the desk. And Josh, you’re taking a look into some of the new research out from Goldman today.
JOSH SCHAFER: Yeah. And Goldman sort of highlighting that what we’re seeing right now as far as earnings projections is pretty standard to see those forward projections start to fall at the end of the third quarter for 2020 or for Q4 and then going into 2024 too. That’s not a typical.
David Kostin pointing out that normally, earnings projections fall about 4% at this time of year. And so when you think about it from a historical perspective, this isn’t completely abnormal. Yes, there are a lot of bad headlines out there. We talk a lot about the macro headwinds. But for it to happen right now isn’t necessarily out of the norm.
And then I want to take a look at a graph that you highlight because I thought it was interesting to see where these projections are being kicked down the most. You guys have talked a lot about health care this morning. I know you’re going to be talking a lot about health care this week. Health care is still not getting a lot of love in terms of earnings. You see that top purple line there, if you exclude health care, would actually be the best.
So right now, the street is still not feeling great about health care. And of course, your mag seven stocks still helping hold up earnings projections.
– It’s really interesting here. I mean and for the Magnificent Seven stocks, a lot of those companies that have been annexed to the AI conversation that have driven much of the returns that we’ve seen over the course of this year, from what Goldman is saying around some of their own individual names that they like going into next year or even the end of this year, where are they perhaps highlighting some of those players? And is there a common denominator among them?
JOSH SCHAFER: Yeah. So health care, clearly not one of them as you saw there. And I think overall, they seem to feel OK about Magnificent Seven as a whole because in some ways, it feels like most people right now, most of the strategy notes we read, if you feel OK about the market, you kind of have to feel OK about Magnificent Seven to some extent. There aren’t a lot of people sort of saying, well, Mag Seven is going to fall and then the Russell 2000 is going to come all the way up and small caps are going to be what saves us here.
So I think if you’re feeling relatively positive overall, yes, you’re seeing some common denominator and at least some of the Mag Seven players will be OK.
– Important disclosure here. A lot of these notes for these look ahead notes tend to be optimistic. And you were mentioning Goldman. I’m looking, I go back to what Michael Wilson is out today with at Morgan Stanley, 7% earnings growth this year. And he’s already predicting 14% earnings growth for 2025. So he’s skipping over 2024, he says earnings could re-accelerate to double digits in 2025 and that’s a tall order.
And that these accounts, these estimates are suggesting nothing is going to go wrong with the economy. And inflation will stay down and maybe oil won’t spike to over ounce a barrel. So just very rosy outlooks by Wall Street. I would expect they will continue.
JOSH SCHAFER: And it’s interesting when you point out oil too because that is one of the main headwinds that you find. Sort of down in these notes what could go wrong, it would be–
– It’s a risk. Upside risk. But here’s our double digit earnings growth estimates.
JOSH SCHAFER: And the geopolitical risk that we have no idea about but everyone’s flagging that’s coming out in all these 2024 outlooks. A lot of uncertainty out there still for sure.
– Yeah. One of the top concerns among CEOs according to KPMG and their survey that they ran earlier this year. Josh, thanks so much for breaking this down for us. Appreciate it. Yahoo Finance’s own Josh Schafer.
Source: finance.yahoo.com
