A report by Goldman Sachs Group Inc (NYSE:GS) last week takes a look at the various estimates for U.S. GDP during 2014 and beyond and presents a study of EPS sensitivity to GDP growth.
GDP growth estimates
On an annual average basis, the midpoint of the Federal Reserve central tendency of GDP growth for 2014 is 2.8%. It is 3.2% in 2015 and 3.0% in 2016.
Goldman Sachs forecasts average annual growth of 2.9% in 2014, up from the 1.8% calculated by annualizing 1H 2013, due basically to the passing of the impact of the 2013 payroll tax increase and the initial sequester phase.
Other estimates vary from 2.0 to nearly 3.0%.
Due to the inclusion of GDP growth estimates in sales, margins and earnings models, its correct quantification is highly important. According to Goldman Sachs estimates, the EPS sensitivity is $5 per share for every 100bp change in US GDP growth. To illustrate, 100bp shift – $5 per share EPS change- a change of 75 index points in the S&P 500 (based on a 15x P/E multiple).
Outlook on the S&P500
Currently the S&P500 is trading at 15.3x the forward 12-month EPS estimate of $112. Goldman Sachs Group Inc (NYSE:GS) project the S&P 500 (INDEXSP:.INX) 0 at 1750 based on a 2013 year end 10-year Treasury yield of 2.75%.
Here is a useful recommendation from Goldman Sachs Group Inc (NYSE:GS) on sectors:
Outlook for the major markets
Given below are quarterly forecasts for important markets: