- US banking giant Goldman Sachs says it expects S&P 500 earnings per share to fall 60% in the second quarter, the biggest decline since 2009 during the financial crisis.
- “If realized, EPS growth in 2Q 2020 would be the weakest since 4Q 2009,” analysts said, noting that EPS fell 65% in that quarter.
- For the full year 2020, Goldman Sachs said it expects the S&P 500 EPS to be 30% lower at $ 115 compared to 2019.
- The bank added that a Democratic victory in the US election and Joe Biden’s implementation of an ambitious fiscal plan could drive EPS down $ 20 in 2021.
- Several US banks report earnings results this week, including JPMorgan, Wells Fargo, Bank of America, and Goldman itself.
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As the second-quarter earnings season begins this week, Goldman Sachs is preparing for S&P 500 earnings per share to drop by 60%, which, if realized, would be the sharpest contraction since 2009, in the heart of the financial crisis.
Goldman, Wells Fargo, JPMorgan and Bank of America are among the big American banks reporting second-quarter earnings this week.
In a note published Friday, July 10, analysts led by David Kostin said they expect earnings per share to drop nearly two-thirds in the second quarter compared to the same period in 2019.
“The Q2 earnings season begins in earnest next week, with the big US banks reporting results. Consensus forecasts that the S&P 500 EPS will decrease 44% annually in Q2, but we believe earnings will drop a 60% in the quarter “.
“If realized, EPS growth in 2Q 2020 would be the weakest since 4Q 2009,” analysts said, noting that EPS fell 65% in that quarter.
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For all of 2020, its baseline scenario for the S&P 500’s average EPS is a 30% drop from 2019. EPS for 2020 will average $ 115, Kostin and his team said.
However, the bank kept its previous EPS forecast for the full year 2021 at $ 170, 48% more than in 2020. By 2022, the US banking giant says EPS will continue to rise, reaching $ 188, an 11% profit.
These are the bank’s benchmark scenarios, but in a downside scenario, analysts said, EPS in 2020 could be as low as $ 105, 2021 could see EPS at $ 135, and in 2022 it could be just $ 160, 14 % below baseline.
Goldman Sachs’ 2020 outlook is based on predictions that US GDP will drop 4.6% on the year, and Brent oil prices will be 35% lower year-over-year at $ 41 per barrel.
Brent is currently trading at around $ 42.50 a barrel, so you would only need to drop a small amount to reach that goal.
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The oil sector has been extremely volatile since March when Saudi Arabia started a price war with Russia. The turmoil was exacerbated by the coronavirus pandemic, which torpedoed demand and even caused U.S. oil prices to turn negative in April amid a huge oil surplus and lack of storage space.
If Joe Biden wins in November, his ambitious tax plan could cut the S&P 500 EPS
The bank also noted that the US elections to be held in November add to the menu of uncertainties facing profits.
In the case of a Joe Biden victory in November, Goldman Sachs says it expects the S&P 500 earnings per share to be $ 20 lower in 2021 than currently expected if it is able to pass its ambitious tax increase plan.
“If enacted, we estimate that Biden’s tax plan would lower our 2021 S&P 500 earnings estimate by $ 20 per share, from $ 170 to $ 150,” the note says.
“This estimate includes raising the federal tax rate on national income from 21% to 28%, doubling the GILTI tax rate on certain foreign income, imposing a minimum tax rate of 15%, adding an additional payroll tax to those who earn more and drag US GDP of a magnitude similar to the momentum TCJA created in 2018. “
Outside of the tax reform, Goldman Sachs identified regulation, infrastructure, and trade policies as possible up and down risk factors for the S&P 500 EPS.
The bank added: “This week, [Democratic nominee Joe] Biden described a $ 700 billion economic plan focused on the fiscal stimulus. The large fiscal expansion would likely provide a tailwind to economic growth and the S&P 500 EPS. “
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