Goldman's Kostin Predicts Modest Returns on Equities

Equity markets will probably climb 8 percent a year for the next decade, even though economic concern will subdue returns in 2012, Goldman Sachs Group Inc.’s chief U.S. equity strategist said.

“Near term, I think there’s more concern regarding many asset classes -- equities in particular -- because of the issues and the headwinds in terms of the economy, in terms of valuation, in terms of modest earnings growth,” David Kostin said in a Bloomberg Television interview today with Tom Keene and Sara Eisen. “I think those are the issues that you’re looking at now to the end of 2012. Longer term, statistically, you should do OK.”

Kostin said negative earnings revisions at major companies and U.S. economic stagnation will hold back stocks this year.

Federal Reserve officials yesterday predicted growth of 1.9 percent to 2.4 percent this year, down from their April forecast of 2.4 percent to 2.9 percent. Fed Chairman Ben S. Bernanke said the economy remained vulnerable to fiscal tightening and any worsening of the euro area’s sovereign-debt crisis. The Federal Open Market Committee, which has kept its benchmark interest rate near zero since December 2008, reiterated yesterday that it expects to keep rates “exceptionally low” at least through late 2014.

Kostin said portfolio managers increasingly look at dividends when investing in equities.

“The scarcest asset in the world is income right now,” he said. “You have big increases coming in technology; they will be the largest sector in terms of payers of dividends.”

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