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Goldman Sachs’s Kostin Says Fiscal Cliff May Be Averted

Sept. 10 (Bloomberg) -- A deal by U.S. lawmakers to head off automatic tax increases and spending cuts at the start of next year may be “messy” and could hurt stocks, Goldman Sachs Group Inc.’s chief U.S. equity strategist David Kostin said.

The so-called fiscal cliff “is unlikely to be resolved in a smooth fashion, and probably will be resolved in a messy way,” Kostin said today at a conference in San Diego sponsored by the Insured Retirement Institute.

Kostin has the second-most bearish view of stock-market performance this year among 15 strategists at Wall Street brokerages. He estimates that the Standard & Poor’s 500 Index will finish 2012 at 1,250, 13 percent below its close of 1437.92 on Sept. 7. The median estimate is 1,425.

The automatic spending cuts totaling about $1.2 trillion through 2021 were part of a deal between the White House and Congress after talks failed last year on a bipartisan plan to curb the nation’s increasing debt. The cuts would be carried out beginning Jan. 2 unless lawmakers reach a deal to cancel or modify them.

“These are significant risks that the market, in our view, hasn’t really appreciated,” Kostin said. The headwind “kicks in in November, December and January when I think there’s downside risk for the overall market.”

Members of Congress probably won’t address the fiscal cliff until after the Nov. 6 election, and it’s possible that they will pass a measure to delay action until next year, Kostin said. If current law takes effect, the U.S. could be plunged into recession early next year, he said.

“We don’t think this is likely to happen,” Kostin said. “But that doesn’t mean that the equity market and investment community doesn’t suddenly realize that, recognize that as a significant risk and make appropriate adjustments in terms of valuation.”

To contact the reporter on this story: Noah Buhayar in New York at nbuhayar@bloomberg.net.

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net

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