David Kostin - Goldman Sachs Group


Last quote by David Kostin

My characterization that early March will be the point of maximum optimism reflects that view. … [With the] latitude of what might have taken place, whether it's health care, whether it's tax reform at the beginning of March ... now as the days go by, the degrees of freedom start to narrow ... maybe the tax reform will take place, but it might not take place till next year. We focus on financials and technology as areas for better growth. That's how we set up a portfolio now.feedback
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Apr 11 2017 Trump Presidency
David Kostin has been quoted 42 times. The one recent article where David Kostin has been quoted is Market going lower, so buy stocks with rising profitability. Most recently, David Kostin was quoted as having said, “Given the late stage of the economic cycle, higher wages, inflation, and interest rates suggest that margin increases this year are unlikely. Lower margins will translate into further negative EPS revisions in 2017.”.
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David Kostin quotes

Stocks have surged ... since the election on the prospect of higher earnings under potential Trump policies, but consensus bottom-up 2017 EPS forecasts for S&P 500 have been unchanged. During the quarterly reporting season that ramps up this week, we encourage investors to focus less on actual 4Q results and more on management insights on how firms are positioned on five policy issues that will drive 2017 earnings revisions and share prices.feedback

In the realm of investing, an example of 'fake news' is the claim by some market participants that a 'great rotation' will take place from bonds to stocks. Despite a sharp rise in interest rates during the past six months and a drop in the market value of debt holdings, we expect minimal asset rotation away from debt and into equities during 2017.feedback

Several investor categories have debt allocations that are currently at the lowest level in 30 years. Debt holdings of these investors may decline further, but a more likely outcome is that bond holdings and allocations remain unchanged and debt as a share of the portfolio falls only to the extent equities appreciate.feedback

S&P 500 will rally to 2400 in 1Q 2017 alongside enthusiasm over corporate tax cuts, but budget constraints will limit the magnitude of tax reform and fiscal spending and the index will fade to 2300 by year-end.feedback

Congressional deficit hawks may constrain Mr. Trump's tax reform plans, and the (earnings) boost investors expect may not materialize.feedback

Policy uncertainty introduces a degree of instability to our 2017 forecast that has been absent in recent years. Uncertainty always exists when forecasting, but our projections for next year have more elements of instability than usual.feedback

Health Care Equipment & Services is one of the few slices of the U.S. market that has demonstrated a statistically significant relationship with changes in presidential election odds.feedback

While near-term drug stocks may benefit from a relief rally, we still expect that drug pricing may remain a bipartisan issue and any changes to Obamacare may be drawn out. New regulations targeting drug pricing and the cost of the Affordable Care Act (ACA) legislation (a/k/a 'Obamacare') will pressure revenues of Pharmaceutical and Biotech firms while increased utilization will continue to benefit Medical Equipment and Services companies.feedback

We expect tax reform legislation under the Trump administration will encourage firms to repatriate $200 billion of overseas cash next year. A significant portion of returning funds will be directed to buybacks based on the pattern of the tax holiday in 2004.feedback

We expect firms will increase cash spending allocated to investing for growth (capex, R&D, and M&A) by 6 percent to $1.3 trillion while cash returned to shareholders (buybacks and dividends) will rise by 19 percent to $1.2 trillion.feedback

Tax and trade reform appear to be high priorities for President elect Trump. Cyclical stocks that should benefit most will have high domestic sales, sizeable profits held overseas that may be repatriated, and/or high corporate tax rates.feedback

Following several years of gridlock inside the Beltway, the potential now exists for a number of legislative initiatives to be passed.feedback

While investors focus on the election, stocks focus on rising wages and expected inflation.feedback

Rising inflation supports the outperformance of cyclical sectors ... over stocks with bond-like qualities [such as consumer staples].feedback

Firms with the most consistently positive EPS revisions from 2011 to 2016 bought back more stock and reduced share count by more than the usual S&P 500 company, expanded margins and had more positive sales revisions than the typical firm.feedback

The candidates would likely look toward corporate tax reform, particularly on untaxed foreign profits, to fund their expansionary fiscal policies. Politicians on both sides of the aisle have advocated for a repatriation holiday, where untaxed foreign profits are taxed at a lower, one-time rate.feedback

We see a weak 3Q reporting season coupled with negative 4Q EPS revisions pushing stocks 2 percent lower to our year-end target of 2,100.feedback

We see a weak 3Q [third quarter] reporting season coupled with negative 4Q EPS [fourth quarter earnings per share] revisions pushing stocks 2% lower to our year-end target of 2100.feedback

We believe the current below-average level of uncertainty is unlikely to persist. Regardless of victor, the most likely policy outcome of the election is increased fiscal spending. We recommend clients vote with their wallets and focus on the likely beneficiaries.feedback

Upcoming debate ranks as the biggest match-up since the Mayweather/Pacquiao bout...viewership may approach Super Bowl proportions with an audience of perhaps 100 million. Both presidential candidates support fiscal spending which should lift aggregate end demand and benefit firms with high government sales exposure.feedback

Low GDP growth and uncertain Fed policy pose risks to cyclical outperformance through year-end.feedback

Based on history, an index-level ROE of 14 pecent implies a P/B of 2.1x, suggesting index downside of 25 percent.feedback

The historical relationship between ROE and P/B shows investors typically penalize falling profitability with lower valuation.feedback

We forecast the S&P 500 will follow a 'fat and flat' trajectory over the next 12 months and finish at 2175, roughly 2 percent above the current level.feedback

Managements expressed concern that consumers will postpone spending due to rising political and economic uncertainty. However, financial firms noted an improvement in household balance sheets.feedback

During the last 10 years, S&P 500 revenues have expanded at an annualized pace of 2.9 percent, nearly the slowest pace in history.feedback

We expect U.S. GDP growth of 2 percent and diverging monetary policy regimes between the U.S. and other major global economies will strengthen the USD [U.S. dollar] during the next 12 months. A more hawkish Fed than the market currently expects, coupled with additional monetary easing in Europe and Japan should boost the U.S. dollar by 7 percent during the next 12 months.feedback

S&P 500 stands at an all-time high and the median stock's P/E is at the 99th percentile relative to the past 40 years.feedback

The current U.S. earnings recession will not end in 2Q [second quarter]. Factors like "rising political uncertainty, unstable global growth prospects, and decelerating buybacks" will add to the risk.feedback

Firms with the highest operating leverage will benefit most from improving activity and the associated pickup in sales growth. Operating leverage is highest in Health Care and lowest in Materials and Energy.feedback

Diversified fund managers who are currently underweight REITs are unlikely to suddenly move to a market weight position in real estate just because the industry group is reclassified as a sector.feedback

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