S&P 500 companies will post combined profit of $89 a share next year, compared with Goldman Sachs’ prior estimate of $93, according to David Kostin, the New York-based equity strategist. Jan Hatzius, the firm’s chief U.S. economist, lowered his prediction for 2011 growth in gross domestic product to 1.9 percent from 2.4 percent on Aug. 6.
“The weak GDP growth forecast and specter of deflation means top-line sales increases will be hard to achieve,” Kostin wrote today in a note to clients. He raised his 2010 earnings forecast for the S&P 500 to $81 a share from $78.
The S&P 500 has rallied 9.7 percent since July 2 as profit growth that exceeded analyst estimates helped overcome concern the economy will slip into the second recession in three years. Growth in the U.S. slowed to a 2.4 percent annual rate in the second quarter, less than forecast, reflecting an easing in consumer spending, according to Commerce Department data.
Before today, the average estimate of 12 strategists tracked by Bloomberg called for the S&P 500 to rise 20 percent in the last six months of 2010 to 1,242. U.S. earnings will increase 35 percent in 2010, the biggest annual gain since 1988, more than 8,000 analyst estimates compiled by Bloomberg show.
The Federal Reserve may return to “unconventional” monetary stimulus as early as this week’s policy meeting as the U.S. economy continues to lose momentum, economists led by Hatzius wrote Aug. 6. The firm raised its estimate for the jobless rate as growth slows and the “reacceleration in U.S. output” expected for 2011 is made more doubtful by congressional resistance to fiscal stimulus, the note said.