Goldman Sachs Downgrades Earnings Forecast, Shifts to Defensives
Goldman Sachs Adjusts Earnings Growth Outlook
David Kostin, the Chief U.S. Equity Strategist at Goldman Sachs, recently updated his earnings growth forecast, reflecting a more cautious economic outlook. Highlighting a significant market trend shift, he has adjusted the earnings growth forecast for 2025 from 11% down to 9%.
Continuing Trends Despite Adjusted Forecast
Despite the reduction for 2025, Kostin asserts that the earnings growth for 2026 remains stable at 7%. Along with this, he maintained that the S&P 500 year-end target stands strong at 6500, implying a potential 11% increase from current levels.
Investors Moving to Defensive Stocks
Kostin noted that there’s a notable shift among investors, transitioning from an "excitement" phase characterized by a focus on cyclical stocks to a "boredom" phase that favors defensive stocks. This strategy alteration comes amid ongoing uncertainties surrounding tariffs and trade relationships. He specifically pointed to healthcare and consumer staples as sectors representing stability amidst market volatility.
Investment Opportunities in Healthcare
Notable stock options within the healthcare sector identified by Kostin include Agilent Technologies (A) and Thermo Fisher Scientific (TMO). These companies stand out for their resilience and potential stability compared to other sectors affected by tariff fluctuations.
Shifting Focus on AI Leveraged Companies
Kostin also highlighted an interesting pivot from AI infrastructure and hyperscalers to software companies that leverage AI for revenue enhancement. Companies like MongoDB (MDB) fit within this trend, reflecting how tech companies are evolving to maintain growth in a competitive environment.
Impact of Tariffs on Earnings Growth
The uncertainties surrounding tariffs they report impact forecasting capabilities significantly. Kostin mentioned that even a slight increase in tariffs, around 5%, could lead to a downturn in earnings growth by 1-2%. This puts additional pressure on monitoring trade progresses as companies adjust to new economic realities.
Institutional Investors' Shifts and Market Implications
This strategic pivot is particularly crucial as it contrasts with the bullish sentiment seen among institutional investors, who had been betting on technology and financial stocks late last year. Reports from the previous quarter indicated a retreat from investments in the healthcare sector; now, however, Kostin advocates for healthcare as a reliable sector. Even well-known investor Warren Buffett’s firm, Berkshire Hathaway, has scaled back its stake in healthcare provider DaVita Inc. (DVA), dropping ownership to 45%.
Conclusion: Potential in Defensive Sectors
The market's recent movements and Kostin’s updated forecast reflect the ambiguities that characterize the current economic landscape. Within these uncertainties lie potential advantages for investors focusing on defensive sectors and AI-driven firms. Ultimately, Kostin emphasizes that GDP growth is the chief determinant of earnings, with inflation and interest rates taking on secondary roles. While the S&P 500 listed stock (SPY) made a modest gain of 1.12%, closing at 5,842.63 recently, it remains clear that the landscape for investors is evolving.
Frequently Asked Questions
What are the new earnings growth forecasts by Goldman Sachs?
The earnings growth forecast for 2025 has been reduced from 11% to 9%, while the forecast for 2026 remains at 7%.
Which sectors are identified as stable by David Kostin?
Kostin identifies healthcare and consumer staples as strong sectors, emphasizing their stability amidst market uncertainties.
What companies does Kostin suggest for investment?
Agilent Technologies (A) and Thermo Fisher Scientific (TMO) are highlighted as strong investment opportunities.
How could tariffs impact earnings growth?
Kostin suggests that a 5% increase in tariffs could potentially reduce earnings growth by 1-2% due to disruptions in unit volumes and margins.
What stock index performance was reported recently?
The S&P 500 index (SPY) recently climbed by 1.12%, closing at 5,842.63 following news of delays in auto tariffs on Canada and Mexico.
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