Goldman Sachs Rethinks Market Valuation Over Event That Hasn't Happened In 48 Years


Goldman Sachs Rethinks Market Valuation Over Event That Hasn't Happened In 48 Years

Goldman Sachs has lowered its stock market estimates for 2016, as oil prices have still not shown any signs of recovery from their long-running slump. The continuing poor performance of oil and other commodities is causing many market analysts to hit the panic button.

Goldman Sachs representative David Kostin said, “We lowered our S&P 500 earnings per share forecast by $3 to $106, $117, and $126 for 2015, 2016, and 2017, reflecting annual growth of -7%, +11% and +8%, respectively. Energy is the leading driver of our reduced profit outlook."

Goldman Sachs isn’t the first investment bank to issue such an alert. Representatives from Deutsche Bank and RBC Capital have already provided such warnings to their clients.

Representative of Deutsche Bank David Bianco originally believed that oil prices would recover in 2016, but now he isn’t so sure. At one point, Bianco predicted that oil prices would average $55 per barrel in 2016.

"This seemed reasonable several weeks ago. But now it doesn't," he said.

The warnings issued by the major banks highlight the challenges associated with forecasting markets, particularly in the energy sector. Analysts have said that they haven’t seen such a downturn in oil markets in at least five decades.

Kostin stated, “We expect Energy will post a $2 per share loss in 2015 EPS, the first time that the last-twelve month Energy EPS has been negative since our data series began in 1967. The write-down in Energy company assets has exacerbated the earnings hit from the 35% fall in Brent crude oil prices in 2015 following a 48% plunge in the commodity price in 2014."

Just one month ago, oil was valued at about $40 per barrel. As a result many market analysts had a positive outlook regarding 2016. Now, a barrel of oil is trading in the low $30s. This downturns suggests that 2016 could be an even worse year for energy stocks than the lackluster 2015.

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