Where to Invest Now
The path to 1250
The Goldman Sachs Group, Inc. does and seeks to do business with companies covered in its research reports. As a result, investors
should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider
this report as only a single factor in making their investment decision.
For Reg AC certification, see the end of the text. Other important disclosures follow the Reg AC certification, or go to
Analysts employed by non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S.
The Goldman Sachs Group, Inc.
David J. Kostin Chief US Equity Strategist Global ECS Research -- US Portfolio Strategy
Goldman, Sachs & Co. 212-902-6781 email@example.com
Goldman Sachs Global ECS Research
US equity market: Investment views & strategies
The path to 1250
1. Economy: The US economy remains in a fragile state
GS Economics forecasts sluggish recovery, high unemployment in 2010, and no Fed rate hike until 2012.
Benefit of inventory re-stocking and fiscal stimulus ends in the middle of 2010.
Excess capacity will affect inflation, interest rates, margins, and capex.
Federal and State fiscal imbalances are key risks; solutions will involve higher taxes and fewer benefits.
2. Earnings: Our S&P 500 operating EPS estimates are $78 for 2010 and $93 for 2011
Focus on $83 of pre-provision EPS in 2010 (+15%) and $93 in 2011 (+12%).
We forecast S&P 500 operating EPS will reach 102% of prior peak in 2011.
Net profit margins troughed in 2009 at much higher level than in prior cycles, accelerating earnings recovery.
EPS forecast in 2011 does not imply a new S&P 500 price level peak.
3. Valuation: Our year-end 2010 DDM fair value estimate of 1250 implies 13.5x NTM EPS
Our 3-month, 6-month, and 12-month S&P 500 targets equal 1160 (+5%