Nuggets from Goldman

Judged by any measure — especially money, power and brains — Goldman Sachs (gs) leads Wall Street. Goldman’s top analysts, including Michael Moran and Abby Joseph Cohen, have a couple new reports out predicting market and economic trends in 2008. Even if you disagree, these prognostications are certain to be influential. There’s a lot to talk about, but here are a few interesting nuggets in Goldman’s Dec. 4 report on S&P 500 earnings: Already pessimistic, Goldman’s analysts are lowering their profit expectations for the S&P 500 from $93 to $90 per share in 2007, and from $100 to $93 in 2008. The new 2007 is a bit below the consensus, but the 2008 prediction is a full $10 below the consensus, i.e. other analysts’ estimates. It’s not just financial stocks — pummeled by the credit crisis — responsible for the lower earnings. Goldman is predicting economic growth of just 1.5% in the fourth quarter of 2007, 1% GDP growth in the first half of 2008, and 2% growth in the second half of the year. In other words, U.S. growth will be almost nonexistent, and that will be reflected in corporate results. What are other analysts thinking? Goldman’s note suggests company analysts could be readying a wave of cuts to their 2008 earnings estimates. While most analysts have lowered 2007 estimates, so far 2008 earnings predictions haven’t moved very much. As a result, these analysts’ estimates for year-to-year earnings growth have actually increased. Eventually they may do the math and re-adjust their expectations downward. The one bright spot? Financial firms are recording big losses this quarter as the value of debt on their balance sheets plunge, and that provides the faintest glimmer of an opportunity next year. If, by some miracle, the market value of these debt derivatives revives, financial firms could report big, and unexpected, gains.

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