Goldman cuts its 2023 earnings forecast to 0%


Broader market earnings will go nowhere next year, according to Goldman Sachs’ latest forecast.

Strategist David Kostin said S&P 500 (SP500) (NYSEARCA:SPY) margins have inflected downward and as a result he is trimming the S&P EPS forecast for 2023 to 0% growth from 3%.

“Following a weak 3Q earnings season in which S&P 500 net margins declined year/year for the first time since the pandemic, we lower our EPS forecasts for 2022 (to $224 from $226), 2023 (to $224 from $234) and 2024 (to $237 from $243),” Kostin wrote in a note. “The revised estimates reflect annual growth of 7%, 0%, and 5%, respectively.”

“Our topdown estimates are below bottom-up consensus forecasts for 2023 and 2024. We maintain our year-end 2022 and 2023 index targets of 3600 (-5%) and 4000 (+6%),” Kostin said.

The exception to margin contraction is Energy (XLE).

“The backdrop of high oil prices and capex discipline has provided an earnings tailwind to Energy firms,” Kostin said. “Net margins during the first three quarters of the year equaled 14%, the highest level on record.”

“Energy EPS has grown from 4% of S&P 500 EPS in 2019 to 11% today. While our top-down model suggests Energy margins should modestly contract in 2023 and 2024, the higher level will provide a tailwind to index net profit margins relative to the 2019 level of 10.7%.”

Sales growth forecasts are unchanged at 12% in 2022 and 4% in 2023 and 2024.

See the earnings on tap this week.