GS-United States: Portfolio Strategy US Weekly Kickstart

3Q 2010 reporting season kicks off next week, led by Industrials, Technology & Financials

 

3Q 2010 reporting season starts next week with 17 S&P 500 firms (7% of equity cap) scheduled to release results. In the three subsequent weeks (Oct 18th- Nov 5th), 395 stocks representing 78% of S&P 500 market cap will announce 3Q results. See our accompanying 3Q Earnings Season Preview for sales, margins and EPS expectations by sector. Key stocks reporting next week: CSX, INTC, JPM, GOOG, SWY, GE.

 

Performance

The S&P 500 was up 1.5% this week. Energy was the best-performing sector this week (+3.0%) while Health Care was the worst-performing sector (+0.6%). We expect the S&P 500 will rise to 1200 (+4%) at year-end 2010.

S&P 500 Earnings

Our top-down EPS forecasts of $81 and $89 for 2010 and 2011 reflect +43% and +10% growth, respectively. Our pre-provision and write-down EPS forecasts are $85 for 2010 and $89 for 2011. Bottom-up consensus forecasts a 45% increase in 2010 to $83, and a 15% increase in 2011 to $95.

Valuation

Top-down, S&P 500 trades at an NTM P/E of 13.3X (13.1X on pre-provision EPS). Bottom-up, it trades at an NTM P/E of 13.2X and LTM P/B of 2.2X.

Sector views and performance

Our rebalanced recommended sector weightings lost 2 bp of alpha this week as Info Tech lagged. Our recommended sector weightings have generated -40 bp of alpha YTD.

US Portfolio Strategy baskets

Our low operating leverage trade (long <GSTHOPLO> / short <GSTHOPHI>) was down 0.5% and our dividend growth trade (long <GSTHDIVG> / short SPX) was down 0.2%.

Our BRICs sales trade (long <GSTHBRIC> / short SPX) was down 0.5% this week while our high Sharpe ratio trade (long <GSTHSHRP> / short SPX) was up 0.1%.

S&P 500 stock performance this week

Leaders: JCP, PLD, ADBE, HOG, and F Laggards: CTXS, AKAM, AXP, IRM, and NVDA

 

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