Goldman Sachs Cuts S&P 500 Earnings Estimate on Economy, Dollar

Slower economic growth, a stronger U.S. dollar and a collapse in earnings at energy producers spurred Goldman Sachs Group Inc. to cut its estimate for U.S. profits by 6.6 percent.

The New York-based firm now sees 2015 earnings by Standard & Poor’s 500 Index companies at $114 a share, after predicting $122 in October. Goldman Sachs maintained its forecast for the benchmark gauge ending the year at 2,100, up 1.8 percent from Tuesday’s close, according to a note dated June 30.

Sales will fall in 2015 for the first time in five years as margins slip and revenue by energy companies declines, Goldman Sachs predicts. At the same time, the bank expects the Federal Reserve to delay an interest-rate increase until December rather than September, helping prop up equity valuations.

“S&P 500 P/E, which is historically rich, will stay elevated through the remainder of 2015, but will compress when the Fed starts its tightening cycle in December,” a Goldman Sachs team led by strategists Amanda Sneider and David Kostin wrote in the report.

The firm noted that S&P 500’s price-earnings multiple declined by 8 percent on average in the three months after the last three initial rate increases.

Speculation about higher interest rates and Greek turmoil sent the S&P 500 2.1 percent lower in June, the biggest monthly drop since January. The gauge trades at 17.5 times estimate profits, near the high reached in April.

More Conservative

Sneider and Kostin are more conservative in their stock forecasts than other Wall Street strategists. The S&P 500 will finish the year at 2,232, according to average estimates by 21 analysts compiled by Bloomberg.

The dollar has strengthened more than the Goldman Sachs team anticipated, according to the note. As central banks in Europe and Japan continue to ease policy while the Fed prepares to boost rates for the first time since 2006, the U.S. currency may jump 11 percent this year, making the nation’s exporters less competitive, according to the note. About 33 percent of sales at S&P 500 members are generated overseas, the bank said.

Earnings at S&P 500 companies will climb 11 percent to $126 a share next year and 7 percent to $134 in 2017, according to Goldman Sachs. Dividends will rise 9 percent this year, it said.

Sales in the energy sector will shrink by 32 percent this year, dragging down overall revenue for the S&P 500, according to Goldman Sachs. The firm also trimmed its forecast for energy-company earnings to $5 a share from $13.

Goldman Sachs also cut its profit projection for technology companies by $2 a share, citing lower economic growth and currency risk. For those, the percentage of sales that come from abroad is almost double that of the broader S&P 500, according to the bank.

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