Goldman Sachs Cuts 2009 S&P 500 EPS Forecast to $40, Sees ‘Near Term’ Drop

By Alexis Xydias – Bloomberg

Feb. 26 (Bloomberg) — Goldman Sachs Group Inc.’s top U.S. strategist said the Standard & Poor’s 500 Index may fall as much as 15 percent in “the near term” and cut a forecast for full- year gains in the benchmark measure amid companies’ losses.

The S&P 500 may drop to 650, compared with yesterday’s close of 764.9, Goldman’s Investment Strategist David Kostin wrote in a report today, before rebounding later in the year. Kostin’s team cut a 2009 year-end forecast for the index to 940, a 23 percent potential upside from current levels, from 1,100 previously.

Declines in stocks this week sent the S&P 500 to a 12-year low, as concern the deepening recession will erode earnings offset the government’s pledge to give more capital to banks. President Barack Obama’s first budget request would provide as much as $750 billion in new aid to the financial industry, according to spending plans being sent to Congress.

“We have seen some progress with regard to two critical signposts on the way to a sustained rally: passage of a fiscal stimulus plan and some clarity surrounding the Financial Stability Plan,” the strategy team wrote. “However, we have yet to see any improvement in two other key signposts: home price stabilization and declines in financials’ losses.”

Profits in the S&P 500 may this year amount to $40 per share, down from a previous prediction of $53, the strategists wrote. They cut a 2010 per-share profit estimate to $63 from $69.

To contact the reporters on this story: Alexis Xydias in London


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