Goldman: A Day of Reckoning Fast Approaches; Markets are at ‘Maximum Optimism’

Bear in mind, Goldman’s David Kostin has been wrong his entire life. I cannot recall the last time he made an accurate call. Therefore, seeing that he’s still dutifully employed at Goldman, I can only surmise that he’s offering us bad advice on purpose — as a mode of misdirection.

In a research note out today, Kostin is saying markets are too ebullient and that a reversion to the mean is coming, especially since the proposed Trump tax cuts might be nothing more than a dream. He noted the divergence between survey data pointing to a stronger than expected economy and professional analysts who are much more sanguine on America’s prospects as being cause for concern.

In other words, the plebeian class should refrain from trying to predict macroeconomic trends and instead see to it that their bottle of gin has been thoroughly polished off — leaving the the professionals at Goldman to properly determine the economic forecast.

“Financial market reconciliation lies ahead,” said David Kostin, Goldman’s chief U.S. equity strategist. “We are approaching the point of maximum optimism and the S&P 500 will give back recent gains as investors embrace the reality that tax reform is likely to provide a smaller, later tailwind to corporate earnings than originally expected.”

Kostin sees a dichotomy between investor hopes and the reality on the ground, and says it’s indicative of “cognitive dissonance” in the market.

“On the one hand, investors, corporate managers, and macroeconomic survey data suggest an increase in optimism about future economic growth,” he said. “In contrast, sell-side analysts
have cut consensus [full-year] adjusted [earnings per share] forecasts by 1 percent since the election and ‘hard’ macroeconomic data show only modest improvement.”

“We recommend investors focus on stocks with high secular growth prospects rather than ‘winners’ and ‘losers’ from potential tax reform,” Kostin said.

Dunce.