S&P 500 May Decline to 1,100 If U.S. Budget Talks Fail, Goldman Sachs Says

The Standard & Poor’s 500 Index may fall to 1,100 if the U.S. debt-reduction supercommittee fails to reach an agreement on budget cuts, according to Goldman Sachs Group Inc.’s David Kostin.

Kostin, the New York-based strategist for Goldman, said in a note dated Nov. 18 that lawmakers’ failure to agree on at least the minimum required savings would demonstrate “the inability of elected officials to act in the long-term best interests of all Americans” and may send the S&P 500 down 9.5 percent from last week’s closing level.

A Democratic aide said the supercommittee will likely announce today it was unable to reach an agreement on at least $1.2 trillion in federal budget savings. The S&P 500 fell 3.8 percent last week, its biggest drop since September, to 1,215.65 on Nov. 18. The benchmark measure for U.S. stocks slumped 1.9 percent to 1,192.98 today.

The S&P 500 may rally above 1,300 if the supercommittee achieves an agreement of $3 trillion to $4 trillion in spending cuts, Kostin said in the note. The index would remain in the range of 1,200 to 1,250 in the more-likely scenario of officials making agreements on the mandated $1.2 trillion, he wrote.

Kostin projects the benchmark equity index will close 2011 at 1,200, and that its companies will earn $96 a share for the 12-month period. The year-end estimate is 7.2 percent lower than the average of the 12 strategists surveyed by Bloomberg. The gauge will climb to 1,300 in the next 12 months as profits increase to $98 a share in 2012, according to his forecasts.

To contact the reporter on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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