Goldman: Three Hurdles the Market Faces in the Fourth Quarter

Why the recent good times might not last.

Trouble ahead.

Photographer: Stephen O'Byrne/FlickrVision

The S&P 500 may have rallied close to 5 percent last week, but that doesn't mean it's going to be smooth sailing for the rest of 2015. In its most recent U.S. Weekly Kickstart, Goldman Sachs analysts highlight three hurdles the market faces as we approach what's turning out to be a bumpy year.

The team, led by David Kostin, starts off by pointing to possibly disappointing results during the current earnings season. The firm recently cut its forecasts for both earnings and the S&P 500.

We expect a combination of disappointing sales growth and weak margins coupled with negative fourth-quarter guidance and reduced prospects for 2016.

Next, Kostin and team say that struggles in D.C. to find a resolution to the fast-approaching debt ceiling deadline could cause issues in November.

Politics suggests the new speaker will need to demonstrate his or her conservative bonafides to establish credibility. Negotiations to lift the debt ceiling may be contentious and may not be resolved until the last moment.

Third, the firm still believes we will have a rate hike from the Federal Reserve in December, and that such a move could lead to turbulence given continued market uncertainty over the timing over the first increase: 

December will witness the countdown to the Fed liftoff. Our U.S. economics research team forecasts the first tightening in nine years will take place on December 16. However, the minutes of the September FOMC meeting were more dovish than many had expected. The market now assigns a probability of only 39 percent that the Fed will raise rates by year-end.

Given all of this, Kostin's team reiterates its earlier call for an essentially flat S&P 500 through the year end. (The firm is forecasting 2,000 and the index closed at 2,014 last week.)

Unfortunately, it doesn't get too much better in 2016 either, with Goldman calling for the index to end next year at 2100, which would be a mere 5 percent gain. 

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