A month ago, when Goldman (NYSE:GS), just as we predicted, cut its GDP outlook for Q1 (to be followed by downgrades to both H2 and Q2) we said: “Some other things nobody will be able to predict: Hatzius dropping full year GDP from 4% to 2.25%; Goldman’s downgrade of precious metals, Kostin’s 2011 S&P 500 price target reduction by 20%, and Goldman (NYSE:GS) getting its New York Fed branch to commence monetizing $1.5 trillion in debt some time in October.” One by one all of the predictions are starting to come true: this morning Goldman head market strategist just cut his S&P 500 outlook from 1,500 to 1,450 (granted it is not 20%…yet. There is, however, over 7 more months left in the year). In the meantime, look for the thunderous Wall Street lemmings herd to do the same. Just as we have been predicting on both. Time for CNBC to trot out Laszlo Ultrasound and to advise him to angle the predictive instrument known as a ruler a littler lower: the S&P 2,854 call in 2 years suddenly appears in jeopardy (absent QE7 of course).
We have lowered our S&P 500 2012 EPS forecast to $104 from $106 and our year-end 2011 price target to 1450 from 1500. At the sector level, the largest changes in our earnings estimates are a $2 increase in Energy 2012 EPS, a $1 decrease in Information Technology, a $2 decrease in Financials earnings and a smaller negative revision to Consumer Discretionary. We made further minor changes to other sectors that are not large enough to highlight.
We expect S&P margins to contract in 2012, focus on sales growth. The combination of higher commodity prices, lower global GDP growth and rising inflation raises our sales forecasts but lowers S&P 500 (NYSE:SPY) expected margins in aggregate. We focus on sectors and stocks best positioned to grow earnings through higher sales. We expect Energy (NYSE:XLE), Consumer Staples and Info Tech to post the highest revenue growth in 2012.
Our new 3-, 6-, and 12-month price targets: 1400, 1450 and 1500
We forecast S&P 500 will grow sales by 10% in 2011 and 8% in 2012, similar to consensus. But we expect margins will peak at 8.9% this year and slip to 8.8% in 2012. Consensus forecasts margins rise to 9.6% in 2012.
We expect a slow but sustained GDP growth environment that will tighten key supply constrained markets and drive prices higher in 2012. Persistent impact of MENA events will push Brent crude to $140/barrel by end-2012.
Stocks with fast sales growth should perform even if margins fade
Firms forecast to generate high sales growth in 2012 are better positioned to absorb rising commodity prices and still post strong EPS gains than companies with average or lackluster sales prospects.
Tyler Durden is the founder of ZeroHedge.