We give the market scribblers at the squid their fair share of guff here at MarketBeat. But we always like reading their notes. Case in point, Goldman Sachs this morning spotlights some of the areas where they’ve been hearing push back from clients on their bullish call for stocks in 2011.
(1) A view – almost completely opposite ours – that lack of improvement in the labor market would mean limited GDP growth which would constrain top-line sales growth, and as a consequence EPS would probably not reach a new high and the P/E ratio would be unlikely to expand;(2) Other investors argued from the completely opposite direction that companies would soon hire more workers and therefore profit margins were at risk of contracting – rather than expanding as we forecast – and thus negative EPS revisions represented a material risk;(3) Contagion from the European sovereign debt problems will lead to a rise in the US Dollar and reduce the translational EPS impact of non-US sales;(4) A view that the 70 bp backup in ten-year Treasury note yields to 3.23% (from 2.63% just one month ago) will slow re-allocation of assets from bonds to stocks, again contrary to our expectation where we anticipate $750 billion of total capital flowing into equities during 2011 with $125 billion reallocated by retail/individuals from fixed-income into equities.Any one of those arguments seems to make sense. But Goldman’s stock strategy shop remains steadfast in their view that an increasingly rosy economic backdrop means good things for stocks....MORE
UPDATED: Goldman Sachs: Here Are our First ‘Top Trades’ of 2011 (GS)*"Where are the Customer's Yachts?"
More on Goldman's Top Trades 2011: "We Like Finance Stocks for First Time Since ‘08" (GS; BKX; XLF)