Earlier we explained why Goldman believes that in 2016 the market, which is now about 1% higher than where it closed in 2014, will also go exactly nowhere.
The reason for this pessimism can be summarized in three bullet points:
i) bifurcated thematic returns. Goldman thinks that due to divergent monetary policies (Fed tightening vs. ECB and BoJ easing) the USD will strengthen and benefit some stocks and harm others. Some of those impacted the most will be multi-nationals and luxury retail companies (see Tiffany earnings today). Overall, the biggest headwind cited by companies in Q3 has been the strong dollar – expect this to continue and to further depress revenues, and thus earnings.
ii) higher rates. According to Goldman, “when fund managers eventually realize the tightening process will be more sustained than originally anticipated the P/E multiple will contract and offset the otherwise positive impact of 10% earnings growth.”
iii) margin expansion stories. If companies can’t rely on top line growth, and multiple expansion is not available, there is just one source of growth: margin expansion.
This post was published at Zero Hedge on 11/24/2015.
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