goldman sachs 12 11-2011
TRANSCRIPT
Goldman Sachs Global Economics, Commodities and Strategy Research 1
December 9, 2011
United States
US Weekly Kickstart Portfolio Strategy Research
Client response to our 2012 US equity outlook
We met with a range of investors this week to discuss our outlook for US equities in the coming year. We expect sub-trend economic
growth, 3% growth in S&P 500 earnings (to $100), and flat valuation, leading to a year-end 2012 target of 1250. Most clients agreed
with our view, with pushback focused on margins and Europe. Bullish investors believe margins will grow from the current record
levels and boost earnings. Others expect resolution in Europe will buoy investor confidence and that the S&P 500 could reach 1400.
A small number of investors expect a collapse of the euro; we estimate the market could trade down to 900 in this scenario.
Performance
The S&P 500 fell 0.8% this week. Financials was
the best-performing sector (+0.8%) while Energy
was the worst-performing sector (-2.1%). We
expect the S&P 500 will trade at 1150 in three
months (-7%) and 1250 in 12 months (+1%).
S&P 500 Earnings
Our top-down EPS forecasts of $100 and $106 for
2012 and 2013 reflect +3% and +7% growth,
respectively. Bottom-up consensus forecasts a
10% increase in 2012 to $108, and a 10% increase
in 2013 to $119.
Valuation
Top-down, S&P 500 trades at an NTM P/E of
12.5X. Bottom-up, it trades at an NTM P/E of 11.8X
and an LTM P/B of 2.1X.
Sector views and performance
Our recommended sector weightings gained 3 bp
this week, and have generated -41 bp of alpha
YTD.
US Portfolio Strategy Baskets
Our recommended trades vs. the SPX: High
Sharpe Ratio <GSTHSHRP> was up 0.2%, High
Quality <GSTHQUAL> was down 0.5%, with
Defensives <GSSBDEFS> and Dividend Growth
<GSTHDIVG> trading flat.
Domestic Sales <GSTHAINT> vs. International
Sales <GSTHINTL> was up 0.3%.
S&P 500 stock performance this week
Leaders: GCI, MS, WDC, JPM, and DF.
Laggards: BHI, TSO, JNPR, BSX, and NFX.
Note: The ability to trade these baskets will depend upon market
conditions, including liquidity and borrow constraints at the time
of trade.
David J. Kostin
(212) 902-6781 [email protected] Goldman, Sachs & Co.
Stuart Kaiser, CFA
(212) 357-6308 [email protected] Goldman, Sachs & Co.
Amanda Sneider, CFA
(212) 357-9860 [email protected] Goldman, Sachs & Co.
Peter Lewis
(212) 902-9693 [email protected] Goldman, Sachs & Co.
Ben Snider
(212) 357-1744 [email protected] Goldman, Sachs & Co.
Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by non-US affiliates are not registered/qualified as research analysts with FINRA in the U.S.
The Goldman Sachs Group, Inc. Goldman Sachs Global Economics, Commodities and Strategy Research
December 9, 2011 United States
Goldman Sachs Global Economics, Commodities and Strategy Research 2
Conversations we are having with clients: Client response to our 2012 US equity outlook
This week we met with a wide range of investors to discuss the outlook
for US equities in 2012. Roughly two thirds of the clients we met with
agree with our base case view that the S&P 500 will deliver lackluster
returns next year. Among those that do not, Europe is the key factor with
bulls outnumbering bears. Investors with global or cross-asset mandates
broadly see US equities as attractive in relative terms. Our outlook is based
on three central points:
1. Stagnant economy. Our US economics team expects a fifth straight year
of sub-trend economic growth with 1.6% GDP growth forecast in 2012 and
the environment persisting in 2013 with 2.2%. They expect unemployment
to remain elevated at 9%, fiscal drag from a divided Congress, and
restrained capex in the face of political and economic uncertainty.
2. Modest earnings growth. We expect margins to peak in 2011 and fall
slightly in 2012. Combined with weak sales growth, this means S&P 500
earnings should grow only 3% to $100 in 2012. Consensus expects $108.
3. Stable valuation. P/E multiples tended to remain flat during 17
“stagnation” periods of prolonged weak but positive economic growth in
OECD countries since 1980. A flat P/E of roughly 12x is supported by our
dividend discount model and uncertainty-based P/E model, although other
approaches such as the Fed model and the historical ROE vs. price/book
relationship suggest significant upside to fair value. Flat valuation along
with modest earnings growth translates into our S&P 500 year-end
2012 target of 1250, roughly unchanged from the current level.
For clients who agree with our outlook, we recommend three strategies
involving our thematic baskets. Buy: (1) High Quality Stocks (Bloomberg
ticker: <GSTHQUAL>) with safe balance sheets and a history of stable
growth; (2) Dividend Growth and Yield (<GSTHDIVG>) as investors navigate
an environment of weak price returns and low yields; (3) stocks with high US
sales exposure vs. firms with high international revenues (<GSTHAINT> vs.
<GSTHINTL>). These strategies have generally outperformed in 2011 and
should continue to work in 2012 given our outlook. Stocks that appear in at
least two of these baskets include ACN, OXY, WAG, CTL, JPM, and WFC.
Bullish investors hold more positive outlooks for margins and Europe,
and argue that our target is too low. Some investors generally agree with
our muted outlook for the economy and corporate earnings, but feel that an
agreement to end Europe’s debt crisis will inevitably be reached next year.
They argue that the stabilization of sovereign balance sheets,
recapitalization of European banks, and clarity in the region’s future will
cause a surge in investor confidence. Investors commonly quote 1400 as a
target S&P 500 price level in this “risk-on” scenario of multiple-expansion.
The divergence between this view and our own is the path to resolution.
Bulls expect clarity in the near term that will reassure investors. We expect
the situation to worsen before it gets better with market pressure necessary
for progress. Our global equity forecasts point to 3- and 6-month downside
in Europe, Asia and the US before recovery in 2H 2012. Clients with global or
cross-asset mandates broadly see equities as attractive relative to low bond
yields and the US as appealing globally due to recent growth momentum.
EU Summit demonstrates progress but lacked “regime change.”
Overall, policymakers are making progress and signaled a commitment to
address the twin sovereign and banking system crises. However, lack of
clarity on the IMF’s role and no clear change in the ECB’s activities in
sovereign debt markets will likely leave some investors disappointed.
Others who disagree with our forecast argue that margins will continue
to expand as sales grow, even in a sub-trend economic environment.
However, history shows that margins don’t always expand when sales grow.
During the last 40 years S&P 500 margins have hit cycle peaks and
contracted six times, and in each period sales continued to grow. Rather,
margins tend to contract in periods of positive but decelerating sales growth.
We expect significantly slower sales growth in 2012 than the 11% rate in
2011, as does consensus.
Margins are the key difference between our earnings forecast and the
consensus view for 2012. We have similar expectations for sales growth in
2012 at 3.7% vs. 5.1% for consensus (ex-Financials and Utilities). However,
we expect margins to contract to 8.7% in 2012 from 8.9% in 2011 while
consensus expects them to grow to 9.4%. Each 50 bp shift in margins equals
about $4 in S&P 500 EPS. The 70 bp gap between our margin forecast and
consensus explains 75% of the $8 difference in 2012 EPS estimates.
Fear of euro collapse frames more bearish views. A small minority of
investors expects a euro breakup and a deep recession in Europe. In this
case our uncertainty-based P/E model suggests the S&P 500 could fall by
roughly 25% to 900. Even if collapse is avoided, the continuation of “passive
containment” and delay of resolution continues to raise the costs in both
financial and economic terms, creating a poor condition for equity markets.
Goldman Sachs Global Economics, Commodities and Strategy Research 3
The charts we are watching: Our 2012 US equity outlook Exhibit 1: S&P 500 sales, margins and EPS forecasts vs. consensus as of December 8, 2011
Exhibit 2: Uncertainty-based P/E model points to possible downside as of November 25, 2011
Source: Compustat, FirstCall, I/B/E/S, and Goldman Sachs Global ECS Research. Source: Goldman Sachs Global ECS Research.
Exhibit 3: Margins often contract when sales growth is positive but slowingas of December 8, 2011
Exhibit 4: Each 50 bp shift in margins equals roughly $4 in 2012 S&P 500 EPS as of December 8, 2011
Source: Compustat and Goldman Sachs Global ECS Research. Source: Goldman Sachs Global ECS Research.
Top-down Bottom-UpGS Forecast Consensus
2011E 2012E 2013E 2011E 2012E 2013ES&P 500 ex-Financials and Utilities
Sales Per Share $873 $905 $949 $871 $915 $961Y/Y growth 11.2 % 3.7 % 4.9 % 11.0 % 5.1 % 5.0 %Y/Y growth ex- Energy 8.0 2.3 4.3 8.3 4.9 4.8
Profit Margin 8.9% 8.7% 8.9% 9.0% 9.4% 10.0%
EPS $78 $79 $84 $79 $86 $96Y/Y growth 16.6% 1.2% 6.9% 17.4% 9.8% 11.6%
Utilities EPS $3 $3 $3 $3 $3 $3Financials EPS 16 17 18 16 18 19
S&P 500 EPS $97 $100 $106 $98 $108 $119Y/Y growth 15.9% 2.7% 6.6% 16.5% 10.4% 10.5%
8
10
12
14
16
18
20
22
24
Jan-
92
Jan-
94
Jan-
96
Jan-
98
Jan-
00
Jan-
02
Jan-
04
Jan-
06
Jan-
08
Jan-
10
Jan-
12
Jan-
14
S&P
500
forw
ard
P/E
estim
ate
95% confidence range
Predicted P/E 8.2X
10.1X12.0X
(40)
(30)
(20)
(10)
0
10
20
30
40
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
Y/Y
Cha
nge
(%)
Sales growth
Margin growth
S&P 500 (Ex-Financials & Utilities)
Margins fall while sales growth remains positive
Sensitivity of 2012 EPS forecast tosales growth and margin
2012 Profit Margin7.7 % 8.2 % 8.7 % 9.2 % 9.7 %
5.7 % 92 97 101 106 111
4.7 91 96 101 105 110
3.7 91 95 100 104 109
2.7 90 95 99 103 108
1.7 89 94 98 103 1072012
Sal
es G
row
th
December 9, 2011 United States
Goldman Sachs Global Economics, Commodities and Strategy Research 4
S&P 500 Performance
Exhibit 5: S&P 500 sector performance over the last week
as of December 8, 2011
Exhibit 6: S&P 500 price return and daily trading volume as of December 8, 2011
Source: FactSet and Goldman Sachs Global ECS Research.
Source: FactSet and Goldman Sachs Global ECS Research.
Exhibit 7: S&P 500 sector performance over time as of December 8, 2011
Exhibit 8: BEST and WORST performing S&P 500 STOCKS BY SECTOR as of December 8, 2011
Source: FactSet and Goldman Sachs Global ECS Research.
Source: FactSet and Goldman Sachs Global ECS Research.
(2.1)
(1.9)
(1.7)
(1.6)(1.3)
(0.4)
(0.4)
(0.4)
(0.1)
0.8
(0.8)
(3.0) (2.0) (1.0) 0.0 1.0
Energy
Materials
Health Care
Utilities
Industrials
S&P 500
Consumer Staples
Telecom Services
Information Tech
Cons Discretionary
Financials
1-week Total Return (%)
0
1
2
3
4
5
6
7
800
900
1,000
1,100
1,200
1,300
1,400
8-D
ec-0
9
8-M
ar-1
0
8-Ju
n-10
8-Se
p-10
8-D
ec-1
0
8-M
ar-1
1
8-Ju
n-11
8-Se
p-11
8-D
ec-1
1
Shares traded (billions)S&P
500
Pric
e Le
vel
S&P 500 daily trading volume (rhs)
S&P 500 daily price level (lhs)
S&P 500200-day moving average
Total Return Percentage Change (%)1-Week 1-Month 3-Month 6-Month YTD 12-Month
Utilities (2)% (2)% 4 % 6 % 14 % 17 %
Consumer Staples (0) 0 4 3 10 12
Health Care (2) (2) 2 (4) 8 10
Cons Discretionary (0) (2) 7 2 5 5
Information Tech (0) (3) 8 4 4 4
Energy (2) (5) 4 (6) 3 7
Telecom Services (0) (2) 4 (2) 1 6
Industrials (1) (2) 8 (6) (3) (0)
Materials (2) (6) (1) (8) (10) (5)
Financials 1 (6) 2 (12) (19) (16)
S&P 500 (1)% (3)% 5 % (2)% 0 % 3 %
BEST STOCKS WORST STOCKSReturn (%) Return (%)
Sector Ticker 1-week YTD Ticker 1-week YTDCons Discr GCI 14 % (14)% DRI (9)% (4)%Consumer Staples DF 6 21 ADM (5) (2)Energy HP 2 22 BHI (11) (13)Financials MS 9 (41) CBG (9) (26)Health Care LLY 3 17 BSX (10) (30)Industrials RHI 4 (8) TXT (7) (24)Info Tech WDC 8 (7) JNPR (10) (46)Materials PX 2 10 ATI (5) (14)Telecom Services VZ 0 11 S (10) (42)Utilities NEE 2 13 NRG (5) (5)
S&P 500 GCI 14 % (14)% BHI (11)% (13)%
December 9, 2011 United States
Goldman Sachs Global Economics, Commodities and Strategy Research 5
S&P 500 Performance (cont’d)
Exhibit 9: TOP 10 performing SUB-SECTORS over the last week as of December 8, 2011
Exhibit 10: BOTTOM 10 performing SUB-SECTORS over the last week as of December 8, 2011
Source: FactSet and Goldman Sachs Global ECS Research.
Source: FactSet and Goldman Sachs Global ECS Research.
Exhibit 11: TOP 10 performing S&P 500 STOCKS over the last week as of December 8, 2011
Exhibit 12: BOTTOM 10 performing S&P 500 STOCKS over the last week as of December 8, 2011
Source: FactSet and Goldman Sachs Global ECS Research.
Source: FactSet and Goldman Sachs Global ECS Research.
2
2
2 2
2
2
3
4
4 5
0 2 4 6
Semiconductor Equipment
Industrial REITs
Auto Parts & Equipment
Brewers
Homebuilding
Home Improvement Retail
Homefurnishing Retail
Other Diversified Financial Services
Human Resource & Employment …
Investment Banking & Brokerage
1-week Total Return (%)
(9)
(8)
(7)
(6)
(5)
(5)
(5)
(5)
(5)
(5)
(10) (9) (8) (7) (6) (5) (4) (3) (2) (1) 0
Real Estate Services
Home Entertainment Software
Coal & Consumable Fuels
Casinos & Gaming
Oil & Gas Equipment & Services
Health Care Facilities
Electronic Equipment & Instruments
Agricultural Products
Life Sciences Tools & Services
Health Care Technology
1-week Total Return (%)
Return (%)
Company Name Ticker Sector 1-week YTD
Gannett Inc. GCI Cons Discr 14 (14)
Morgan Stanley MS Financials 9 (41)
Western Digital WDC Info Tech 8 (7)
JPMorgan Chase JPM Financials 6 (22)
Dean Foods Co. DF Consumer Staples 6 21
Northern Trust NTRS Financials 5 (28)
CarMax Inc. KMX Cons Discr 5 (4)
eBay Inc. EBAY Info Tech 5 11
Lowe's Cos. LOW Cons Discr 4 1
Tellabs Inc. TLAB Info Tech 4 (39)
S&P 500 Average (1) (1)
Return (%)
Company Name Ticker Sector 1-week YTD
Baker Hughes BHI Energy (11) (13)
Tesoro Corp. TSO Energy (11) 17
Juniper Networks JNPR Info Tech (10) (46)
Boston Scientific BSX Health Care (10) (30)
Newfield Exploration NFX Energy (10) (43)
Sprint Nextel Corp. S Telecom Services (10) (42)
Darden Restaurants DRI Cons Discr (9) (4)
Halliburton HAL Energy (9) (18)
Agilent Technologies A Health Care (9) (17)
CBRE Group Inc CBG Financials (9) (26)
S&P 500 Average (1) (1)
December 9, 2011 United States
Goldman Sachs Global Economics, Commodities and Strategy Research 6
Earnings and Sales Exhibit 13: EARNINGS GROWTH: S&P 500 bottom-up consensus estimates as of December 8, 2011
Exhibit 14: SALES GROWTH: S&P 500 bottom-up consensus estimates as of December 8, 2011
Source: FactSet and Goldman Sachs Global ECS Research.
Source: FactSet and Goldman Sachs Global ECS Research.
Exhibit 15: TOP-DOWN vs. BOTTOM-UP: Goldman Sachs vs. Consensus as of December 8, 2011
Exhibit 16: TOP-DOWN vs. BOTTOM-UP: Sales and Margins as of December 8, 2011
Source: FactSet and Goldman Sachs Global ECS Research. Source: Compustat, FactSet, and Goldman Sachs Global ECS Research.
2011E Earnings Per Share Growth Annual1QA 2QA 3QE 4QE 2011E 2012E
Energy 30 42 68 34 43 2Materials 53 50 22 (2) 31 12Information Technology 27 23 9 15 18 16Industrials 25 24 17 4 17 13S&P 500 16 19 18 13 17 10Financials 8 11 20 25 16 16Consumer Discretionary 12 13 13 1 9 8Health Care 8 13 3 11 9 10Consumer Staples 8 8 6 3 6 8Utilities (10) 5 1 11 1 0Telecom Services (0) (10) 6 (7) (3) 9
S&P 500 (ex-Energy) 14 16 11 10 13 12
2011E Sales Per Share Growth Annual1QA 2QA 3QE 4QE 2011E 2012E
Energy 18 29 32 19 24 6Materials 14 13 13 10 13 8Information Technology 14 13 11 12 12 9S&P 500 10 13 13 9 11 5Industrials 12 13 10 8 10 6Consumer Staples 8 10 11 6 9 3Health Care 5 7 9 5 6 1Consumer Discretionary 4 6 6 4 5 5Telecom Services (1) 3 1 4 2 4
Contribution to EPS Annual earnings growth rates
GS Top-Down EPS Bottom-up GS Top-Down Bottom-Up
2012E 2013E 2012E 2013E 2012E 2013E 2012E 2013E
Telecom Services $3 $3 $2 $3 16 % 5 % 9 % 15 %
Information Technology 19 21 21 23 6 8 16 12
Energy 15 17 15 17 5 12 2 11
Health Care 12 13 13 14 3 3 10 8
Consumer Staples 9 10 10 11 1 3 8 10
Utilities 3 3 3 3 (1) 6 0 4
Industrials 9 10 11 12 (2) 3 13 12
Consumer Discretionary 8 9 10 11 (7) 5 8 16
Materials 2 3 4 5 (27) 22 12 14
S&P 500 ex-Financials 82 88 90 100 1 7 9 11
Financials 17 18 18 19 11 5 16 6
S&P 500 Operating EPS $100 $106 $108 $119 3 % 7 % 10 % 10 %
3%
4%
5%
6%
7%
8%
9%
10%
11%
1979
1984
1989
1994
1999
2004
2009
2014
Goldman SachsPortfolio StrategyForecast
S&P 500 Net Profit Margin(trailing four quarters)
Bottom-up ConsensusForecast
8.9
5.9
3.94.7
Goldman Sachs ConsensusPortfolio Strategy Bottom-Up2012E 2013E 2012E 2013E
Sales Growth 3.7 % 4.9 % 5.1 % 5.0 %Margin Level 8.7 % 8.9 % 9.4 % 10.0 %
Margin Change (%) Y/Y (2) 2 5 6Margin Change (bp) Y/Y (22) 17 41 59
December 9, 2011 United States
Goldman Sachs Global Economics, Commodities and Strategy Research 7
Revisions
Exhibit 17: EARNINGS and SALES REVISIONS Aggregate dollars % change, as of December 8, 2011
Exhibit 18: Stocks with the most POSITIVE and NEGATIVE EPS REVISIONS as of December 8, 2011
Source: FirstCall, I/B/E/S, FactSet, and Goldman Sachs Global ECS Research.
Source: FirstCall, I/B/E/S, FactSet, and Goldman Sachs Global ECS Research.
Exhibit 19: S&P 500 1-Month EPS Revision Sentiment vs. 1-Month Return as of December 7, 2011
Exhibit 20: 1-Month Earnings Revision Sentiment by SECTOR as of December 7, 2011
Source: FirstCall, I/B/E/S, FactSet, and Goldman Sachs Global ECS Research.
Source: FirstCall, I/B/E/S, FactSet, and Goldman Sachs Global ECS Research.
EPS REVISIONS SALES REVISIONS1 month 3 month 1 month 3 month
12E 13E 12E 13E 12E 13E 12E 13E
Consumer Staples 0.1 % 0.1 % (1.3)% (1.7)% 0.4 % 0.4 % 0.0 % 0.1 %Industrials 0.0 (0.3) (3.0) (3.7) (0.4) (0.3) (1.1) (1.6)Consumer Discretionary (0.1) (0.2) (2.1) (2.3) (0.4) (0.4) (1.0) (1.0)Utilities (0.1) (0.4) (0.7) (0.6) NM NM NM NMHealth Care (0.1) (0.2) (0.6) (0.5) (0.7) 0.1 (0.7) (0.1)Energy (0.2) 0.5 (5.6) 1.5 (1.0) 4.2 (9.3) 1.3S&P 500 (0.3) (0.2) (3.6) (2.7) (0.4) 0.7 (2.4) (0.2)Information Technology (0.4) 0.1 (0.6) (0.5) (0.4) (0.4) (1.1) (0.6)Telecommunication Services (0.6) 0.2 (7.1) (8.2) 0.1 0.6 0.3 1.2Materials (0.7) (0.4) (9.1) (5.0) 0.4 0.6 0.0 0.1Financials (0.7) (1.1) (8.2) (8.8) NM NM NM NM
POSITIVE 2012 EPS REVISIONS NEGATIVE 2012 EPS REVISIONS1 month 3 month 1 month 3 month
Ticker Revis. Return Revis. Return Ticker Revis. Return Revis. Return
WDC 186 % 13 % 4 % 11 % SHLD (112)% (25)% (127)% 7 %
DE 10 2 7 (0) NFLX (53) (23) (86) (67)
SUN 9 2 8 1 MU (18) (2) (61) (7)
PHM 7 2 39 35 AMAT (18) (14) (18) 1
DNR 7 (8) (9) 8 TLAB (14) (9) NM 0
CTL 7 (5) 28 6 MPC (14) (11) (11) (10)
RAI 5 4 5 8 ADI (13) (6) (15) 6
DHI 5 2 0 25 WY (13) (4) (36) (3)
TSN 5 3 5 18 CSC (12) (24) (15) (12)
AKS 4 (9) (34) (3) HPQ (11) (1) (14) 16
S&P 500 (0)% (3)% (4)% 5 % (0)% (3)% (4)% 5 %
(30)%
(20)%
(10)%
0 %
10 %
20 %
30 %
(60)%
(40)%
(20)%
(0)%
20%
40%
60%
Jun-
06
Dec
-06
Jun-
07
Dec
-07
Jun-
08
Dec
-08
Jun-
09
Dec
-09
Jun-
10
Dec
-10
Jun-
11
Dec
-11
Jun-
12
S&P 500 Monthly %
Return1-M
onth
Rev
isio
n Se
ntim
ent
1-Month FY2 EPS Revision Sentiment (lhs)[(# pos. revisions - # neg. revisions)/ total revisions]
Price Performance (rhs)
S&P 500
(16)%
(14)%
(12)%
(10)%
(8)%
(6)%
(4)%
(2)%
0 %
2 %
4 %
Con
sum
er D
iscr
Indu
stria
ls
Con
sum
er S
tapl
es
Hea
lth C
are
S&P
500
Util
ities
Info
Tec
h
Ener
gy
Mat
eria
ls
Fina
ncia
ls
Tele
com
Ser
vice
s
Ear
ning
s Se
ntim
ent
1-Month Earnings Revision Sentiment by Sector[(# pos. revisions - # neg. revisions)/ total revisions]
December 9, 2011 United States
Goldman Sachs Global Economics, Commodities and Strategy Research 8
Valuation
Exhibit 21: Aggregate valuation metrics for S&P 500 and sectors bottom-up consensus valuation, as of December 8, 2011
Exhibit 22: Standard deviation vs. 10-year history (Z-Score) bottom-up consensus, as of December 8, 2011
Source: Compustat, FirstCall, via FactSet, and Goldman Sachs Global ECS Research.
Source: Compustat, FirstCall via FactSet, and Goldman Sachs Global ECS Research.
Exhibit 23: Historical NTM P/E and LTM P/B values for the S&P 500 aggregate bottom-up consensus valuation, as of December 8, 2011
Exhibit 24: Top stocks by fastest 2012E earnings growth and lowest NTM P/E by sector, as of December 8, 2011
Source: Compustat, FactSet, and Goldman Sachs Global ECS Research.
Source: Compustat, FactSet, and Goldman Sachs Global ECS Research.
EV/ Sales
EV/ EBITDA
Price/ Book
FCF Yield
PEG Ratio
NTM P/E
S&P 500 1.3x 7.1x 2.1x 6.5 % 1.0x 11.8xTelecommunication Services 1.8 5.9 1.8 9.7 2.7 16.9Consumer Staples 1.2 9.4 3.5 5.5 1.6 14.4Consumer Discretionary 1.3 7.2 2.9 6.4 1.0 14.0Utilities NM 7.5 1.5 1.9 3.9 13.9Industrials 1.5 8.6 2.5 6.5 0.8 12.3Information Technology 2.0 7.7 3.4 8.0 0.9 12.0Materials 1.3 6.6 2.4 6.4 0.9 11.8Health Care 1.1 7.1 2.4 9.5 1.3 11.1Energy 1.0 4.8 2.0 2.8 0.7 10.1Financials NM NM 0.9 NM 0.8 9.5
EV/ Sales
EV/ EBITDA
Price/ Book
FCF Yield P/E
PEG Ratio
Median Z-Score
S&P 500 (1.0) (1.7) (1.4) (1.2) (1.7) (1.9) (1.6)Financials NM NM (1.7) NM (1.0) (1.2) (1.2)Health Care (1.3) (1.0) (0.9) (2.2) (0.5) 2.6 (0.9)Information Technology (0.5) (1.0) 0.9 (1.4) (1.1) (0.6) (0.8)Energy (0.6) (0.5) 0.0 1.0 0.6 (0.7) (0.2)Materials 0.2 (0.4) 0.8 (0.1) 0.1 (0.5) 0.0Consumer Discretionary 2.5 0.8 2.4 (0.2) 0.0 (0.2) 0.4Industrials (1.1) 0.2 1.3 1.3 0.6 (1.4) 0.4Telecommunication Services (0.2) 1.8 1.0 0.2 3.4 2.6 1.4Utilities NM 1.4 0.6 0.0 1.7 3.8 1.4Consumer Staples 2.4 2.8 0.0 1.3 2.0 2.7 2.2
11.8
05
1015202530
1/76 1/79 1/82 1/85 1/88 1/91 1/94 1/97 1/00 1/03 1/06 1/09 1/12
NTM
P/E
(x)
10-yr rolling avg
P/E
2.10123456
1/76 1/79 1/82 1/85 1/88 1/91 1/94 1/97 1/00 1/03 1/06 1/09 1/12
LTM
P/B
(x)
10-yr rolling avg
P/B
GROWTH VALUEFastest EPS Growth (%) Lowest P/E (x)
Sector Ticker 2012E 2013E Ticker NTM Rel to SPX
Cons Discr AMZN 67 83 GCI 5.9 0.5
Consumer Staples DF 24 25 SVU 5.7 0.5
Energy NBR 54 17 VLO 4.8 0.4
Financials ZION 75 26 LNC 5.1 0.4
Health Care EW 39 28 CI 7.8 0.7
Industrials LUV 97 33 RRD 7.4 0.6
Info Tech MU 81 NM FSLR 5.5 0.5
Materials ATI 49 31 CLF 5.7 0.5
Telecom Services AMT 68 26 PCS 10.1 0.9
Utilities NRG 25 (20) AES 8.8 0.7
December 9, 2011 United States
Goldman Sachs Global Economics, Commodities and Strategy Research 9
S&P 500 Factor Performance
Exhibit 25: S&P 500 factor return ranking for the week ended December 8, 2011 (a)
(a) Factor return analysis uses S&P 500 companies included in the Goldman Sachs Americas coverage universe with stock prices greater than $5 at the time of publication. (b) Growth, Value and Profitability analysis is based on Goldman Sachs Investment Profile scores (“IP Scores”). Growth, value and profitability metrics are indexed based on composites of several methodologies to determine the stocks percentile ranking within the region’s coverage universe. The precise calculation of each metric may vary depending on the fiscal year, industry and region but the standard approach is as follows: Growth is a composite of next year’s estimate over current year’s estimate, e.g. EPS, EBITDA, Revenue. Return is a year one prospective aggregate of various return on capital measures, e.g. CROCI, ROACE, and ROE. Multiple is a composite of one-year forward valuation ratios, e.g. P/E, dividend yield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book. (c) “Other metric” analysis based on current market prices and data sourced from NASDAQ and NYSE via FactSet.
Source: NASDAQ and NYSE via FactSet, IDC, and Goldman Sachs Global ECS Research.
Last Week Spread (%) Performance Spread of Top Quintile Less Bottom Quintile (%)Last Last Five Trading Days Last Last
Growth Metrics(b) Week 2-Dec 5-Dec 6-Dec 7-Dec 8-Dec Month QuarterEPS Growth (0.5) 0.4 0.4 (0.2) (0.4) (0.8) (0.6) 3.2
GROWTH (1.3) 0.2 0.4 (0.2) (0.7) (1.0) (1.4) 1.3
EBITDA Growth (1.3) 0.1 0.2 (0.1) (0.9) (0.6) (0.8) 2.3
Sales Growth (1.9) (0.3) 0.3 (0.5) (0.6) (0.8) (1.7) (0.2)
Value Metrics(b)
EV/DACF 1.5 0.0 (0.3) 0.7 0.3 0.9 2.5 5.2
P/B 1.4 0.0 (0.2) 0.2 (0.2) 1.5 3.3 10.0
EV/EBITDA 1.2 (0.0) (0.2) 0.5 0.1 0.7 1.3 5.0
VALUATION 0.8 0.3 (0.2) 0.3 (0.2) 0.6 1.5 7.4
EV/FCF 0.6 0.5 (0.1) 0.5 (0.2) (0.1) 0.3 1.5
P/E 0.6 0.3 (0.1) (0.0) (0.0) 0.4 1.3 8.2
P/Div (1.1) (0.1) 0.1 (0.4) (0.3) (0.5) (1.3) 2.9
Profitability Metrics(b)
ROE 0.3 (0.1) (0.4) (0.1) (0.4) 1.3 3.6 5.1
ROCE 0.1 (0.3) (0.3) (0.1) (0.2) 1.0 2.0 6.5
CROCI (0.0) (0.1) 0.3 (0.6) (0.3) 0.6 1.1 6.4
PROFITABILITY (0.1) (0.2) (0.1) (0.3) (0.6) 1.0 2.5 7.3
Other Metrics(c)
Short Interest Level 0.1 0.3 1.3 (0.5) 0.3 (1.2) (2.9) (4.2)
Equity Capitalization 0.6 (0.1) (0.9) 0.5 0.1 0.9 3.6 4.6
(2) (1) 0 1 2
December 9, 2011 United States
Goldman Sachs Global Economics, Commodities and Strategy Research 10
Style and Size
Exhibit 26: Total return by style and size over time as of December 8, 2011
Exhibit 27: Total return by SECTOR for S&P 500 vs. Russell 2000 as of December 8, 2011
Source: FactSet and Goldman Sachs Global ECS Research.
Source: FactSet and Goldman Sachs Global ECS Research.
Exhibit 28: GROWTH vs. VALUE relative performance over time Russell 1000 Growth vs. Value, as of December 8, 2011
Exhibit 29: LARGE CAP vs. SMALL CAP relative performance over time S&P 500 vs. Russell 2000, as of December 8, 2011
Source: FactSet and Goldman Sachs Global ECS Research.
Source: FactSet and Goldman Sachs Global ECS Research.
Total Return Percentage Change (%)1-Week 1-Month 3-Month 6-Month YTD
Large Cap vs. Small CapS&P 500 (1) (3) 5 (2) 0Russell 2000 (1) (4) 4 (8) (7)
Large vs. Small (bps) 31 116 30 517 679
Growth vs. ValueRussell 1000 Growth (1) (3) 4 (1) 2Russell 1000 Value (0) (3) 5 (5) (2)
Growth vs. Value (bps) (85) (25) (107) 363 414
Weight (%) 1-Week (% Return) YTD (% Return)Sector SP500 R2000 SP500 R2000 ∆ (bps) SP500 R2000 ∆ (bps)Materials 4 5 (2) (3) 113 (10) (13) 336Financials 13 22 1 (0) 113 (19) (9) (996)Energy 12 7 (2) (3) 98 3 (8) 1,110Consumer Staples 11 4 (0) (1) 97 10 4 647Health Care 12 13 (2) (3) 79 8 (1) 923Utilities 4 4 (2) (2) 66 14 10 345Telecom Services 3 1 (0) (1) 12 1 (9) 1,006Industrials 11 16 (1) (1) 12 (3) (9) 561Cons Discretionary 11 13 (0) 0 (36) 5 (8) 1,282Information Tech 20 17 (0) (0) (37) 4 (7) 1,054
Index 100 100 (1) (1) 31 0 (7) 679
80
85
90
95
100
105
Jan-
09
Apr-0
9
Jul-0
9
Oct
-09
Jan-
10
Apr-1
0
Jul-1
0
Oct
-10
Jan-
11
Apr-1
1
Jul-1
1
Oct
-11
Jan-
12
Value outperforming
Growth outperforming85
90
95
100
105
110
Jan-
09
Apr
-09
Jul-0
9
Oct
-09
Jan-
10
Apr
-10
Jul-1
0
Oct
-10
Jan-
11
Apr
-11
Jul-1
1
Oct
-11
Jan-
12
S&P 500 outperforming
Russell 2000 outperforming
December 9, 2011 United States
Goldman Sachs Global Economics, Commodities and Strategy Research 11
Global Equity Market and Mutual Fund Performance
Exhibit 30: GLOBAL EQUITY MARKET performance over the past week as of December 8, 2011
Exhibit 31: US EQUITY MUTUAL FUND performance vs. benchmark as of December 8, 2011
Source: FactSet and Goldman Sachs Global ECS Research.
Source: Lipper, FactSet, and Goldman Sachs Global ECS Research.
Exhibit 32: GLOBAL EQUITY MARKET performance over time as of December 8, 2011
Exhibit 33: International and other MUTUAL FUND performance as of December 8, 2011
Source: FactSet and Goldman Sachs Global ECS Research.
Source: Lipper, FactSet, and Goldman Sachs Global ECS Research.
(4)(2)(2)
(1)
(1)(1)
(0)(0)
(0)1 1
(1)
(5) (4) (3) (2) (1) 0 1 2
Germany (Dax)France (CAC 40)Brazil (Bovespa)
Europe (DJ Stoxx 600)U.S. (S&P 500)
Spain (IBEX 35)Korea (KOSPI)Mexico (Bolsa)UK (FTSE 100)
China (MSCI China)Japan (Nikkei)
Australia (ASX 200)
% Weekly price change
Avg. Total Return (%) No. of AUMLipper Indices 1-week YTD Funds $ bilLarge-Cap Core Funds (1.1) (1.8) 30 468
Benchmark: S&P 500 (0.8) 0.1
Large-Cap Growth Funds (1.6) (2.6) 30 255Benchmark: Russell 1000 Growth (1.3) 1.7
Large-Cap Value Funds (0.8) (4.6) 30 192Benchmark: Russell 1000 Value (0.5) (2.5)
Small-Cap Core Funds (1.9) (5.7) 30 139Benchmark: Russell 2000 (1.1) (6.7)
Price Return (%) USD1-Week 1-Month 3-Month 2011 YTD 2010
U.S. (S&P 500) (1) (3) 4 (2) 13Korea (KOSPI) (1) (0) (2) (6) 25UK (FTSE 100) (0) (4) (0) (7) 6Australia (ASX 200) 1 (2) (2) (10) 11Japan (Nikkei) 1 0 (2) (11) 11Mexico (Bolsa) (0) (4) (4) (14) 27Europe (DJ Stoxx 600) (1) (5) (2) (14) 2Spain (IBEX 35) (1) (4) (3) (15) (23)China (MSCI China) (0) (2) (3) (15) 5Germany (Dax) (4) (5) 3 (16) 9France (CAC 40) (2) (5) (5) (19) (10)Brazil (Bovespa) (2) (6) (9) (24) 6
Average (1) (3) (2) (13) 7
Avg. Total Return (%) Stdev No. of AUM
Lipper Indices 1-week YTD 1-week YTD Funds $ bil
International Equity
Global Funds (1) (9) 0.5 5.9 30 161
International Funds (2) (14) 0.6 4.6 30 394
European Funds (2) (14) 0.4 4.7 10 11
Emerging Market Funds (2) (17) 0.6 3.5 30 121
Real Estate and Natural Resources
Real Estate (0) 2 0.3 3.5 30 50
Natural Resource (3) (8) 0.3 1.7 10 7
Fixed Income
General U.S. Government Funds Index 1 8 0.5 7.7 30 NA
A Rated Bond Funds Index 1 7 0.5 3.3 30 NA
BBB Rated Funds Index 1 7 0.5 8.5 30 NA
December 9, 2011 United States
Goldman Sachs Global Economics, Commodities and Strategy Research 12
ETF Analysis: Composition, Valuation, Growth and Ownership
Exhibit 34: Selected ETF analysis for the week ended December 8, 2011 (a) (b)
(a) Performance of the underlying index. (b) Valuation, growth and ownership metrics are bottom-up aggregations of consensus forecasts, except where noted. (c) Hedge Fund ownership data based on 3Q 2011 13-F filings.
Source: Compustat, First Call, Lionshare via FactSet, IDC, and Goldman Sachs Global ECS Research. See our Goldman Sachs ETF Bloomberg page <GETFG> or contact the desk at 1-888-ETF-DESK for more information.
ETF Description Composition Performance (%) Valuation Growth (%) Ownership Market Top Stocks as Valuation Short Median
Cap No. of % of ETF Price Change (a) P/E P/B Div Sales Growth Earnings Growth Interest Hedge FundSector / sub-sector Index ETF $ mil Stocks 1 5 10 1 Wk YTD NTM LTM Yield 2012 2013 2012 2013 Days Own (%) (c)
S&P 500 SPX SPY 91,821 500 3 12 20 (1) (2) 12 2.0 2.2 3 5 10 12 2.2 3.3S&P 100 OEX OEF 2,948 100 5 19 31 (0) (1) 11 2.0 2.4 3 5 9 11 1.8 2.0Nasdaq-100 NDX QQQ 24,836 100 14 40 56 (1) 3 13 3.3 1.0 10 9 13 13 1.8 3.6
Consumer Discretionary IXY XLY 2,141 77 8 30 46 (0) 3 14 2.7 1.7 6 6 12 16 2.6 4.5Homebuilders SPHOME XHB 798 33 5 21 40 0 (4) 23 1.7 1.2 7 8 97 46 3.3 7.4Retail IRH RTH 142 18 19 59 84 (0) 5 14 2.9 1.9 5 5 12 14 2.4 3.2Retail SPSIRETR XRT 755 94 2 8 14 (0) 5 15 2.2 1.0 4 4 21 19 3.4 7.5
Consumer Staples IXR XLP 5,520 42 14 45 66 (1) 7 14 3.4 3.1 5 4 8 10 2.5 2.0
Energy IXE XLE 7,319 42 18 50 64 (3) 0 11 1.9 1.8 (5) 8 4 13 2.2 4.7Clean Energy ECO PBW 215 57 3 15 28 (4) (49) NM 0.9 0.6 1 19 411 NM 5.3 4.2Natural Resources SPGSSINR IGE 1,820 154 9 32 44 (3) (8) 11 1.8 1.7 (0) 8 12 16 2.3 6.2Oil & Gas E&P SPSIOP XOP 970 73 2 9 18 (4) 1 15 1.8 0.6 0 14 22 42 2.7 6.2Oil Services OXH OIH 1,922 14 20 65 92 (5) (16) 11 1.6 1.6 17 10 42 20 2.0 6.0
Financials IXM XLF 5,003 80 9 35 50 1 (20) 9 0.8 2.0 NM NM 23 13 2.3 2.6Banks BKX KBE 1,043 38 3 15 29 1 (27) 11 0.8 2.4 NM NM 31 16 1.7 2.7Broker-Dealers DJSINV IAI 53 24 8 35 60 0 (27) 11 1.1 1.8 NM NM 28 17 1.9 3.7Insurance KIX KIE 117 41 3 14 27 (0) (16) 9 0.8 2.3 NM NM 58 9 2.4 3.3Real Estate DJUSRE IYR 3,012 80 9 26 43 (0) (3) 14 2.1 4.8 NM NM 6 7 5.5 1.8Regional Banks KRX KRE 547 69 2 11 21 (1) (12) 12 0.9 2.1 NM NM 26 18 4.4 3.5REITs RMZ VNQ 8,730 110 10 29 47 (0) (1) 15 2.2 4.0 NM NM 9 7 6.3 2.1
Health Care IXV XLV 3,623 51 13 44 60 (2) 5 11 2.4 2.4 2 3 5 8 2.5 3.3Biotech SPSIBI XBI 395 44 5 21 38 (4) 0 NM 5.6 0.1 14 20 NM NM 4.0 8.4Pharmaceuticals IPH PPH 532 14 24 79 97 (0) 7 11 2.5 3.4 (4) (0) 1 5 2.3 2.0
Industrials IXI XLI 2,941 61 10 31 49 (2) (5) 12 2.6 2.4 7 6 13 14 2.6 1.8Transportation TRAN IYT 386 20 12 45 74 (1) (5) 14 2.4 1.6 6 6 30 20 2.8 3.8
Information Technology IXT XLK 7,352 83 14 43 64 (0) 1 13 3.0 1.8 7 6 10 12 1.6 3.8Semiconductors SOXXIV SOXX 218 30 10 40 63 (1) (10) 14 2.3 1.6 2 10 (2) 21 2.0 4.0Semiconductors XSH SMH 564 17 24 69 90 (1) (6) 13 2.7 2.3 1 9 (2) 16 2.0 3.6Software SPGSTISO IGV 529 54 10 36 57 (1) (2) 16 3.7 0.5 10 8 12 13 2.3 3.9Telecom Services DJSTELT IYZ 497 29 19 56 75 (2) (13) 30 1.8 3.8 4 2 28 46 2.9 6.2
Materials IXB XLB 1,692 31 11 45 66 (2) (13) 12 2.5 2.2 7 5 11 15 2.4 3.5Gold Miners GDM GDX 9,488 29 17 53 76 (5) (7) 12 2.3 1.1 24 4 41 6 1.3 3.5Metals & Mining SPSIMM XME 828 40 4 18 33 (4) (25) 13 1.5 1.3 7 6 43 33 2.1 6.2Steel STEEL SLX 187 26 12 44 68 (3) (33) 8 1.1 2.4 5 6 6 23 2.5 3.0
Utilities IXU XLU 7,074 33 9 35 56 (2) 9 14 1.5 4.2 NM NM (2) 4 3.0 1.9
December 9, 2011 United States
Goldman Sachs Global Economics, Commodities and Strategy Research 13
Fund Flows
Exhibit 35: Domestic equity mutual fund flows, 4-week moving average week ended December 7, 2011
Exhibit 36: US EQUITY MUTUAL FUND performance vs. benchmark week ended December 7, 2011; excluding ETFs
Source: Lipper and Goldman Sachs Global ECS Research.
Source: Lipper and Goldman Sachs Global ECS Research.
Exhibit 37: Average daily TRADING TURNOVER over the last week by sector, as of December 8, 2011
Exhibit 38: Top ten S&P 500 STOCKS by daily average trading turnover as of December 8, 2011
Daily average turnover = daily avg. trading value / avg. market cap (over the past 5 trading days).
Daily average turnover = daily avg. trading value / avg. market cap (over the past 5 trading days).
Source: Compustat, FactSet, and Goldman Sachs Global ECS Research.
Source: Compustat, FactSet, and Goldman Sachs Global ECS Research.
(7.0)
(5.0)
(3.0)
(1.0)
1.0
3.0
5.0
Dec
-05
Jun-
06
Dec
-06
Jun-
07
Dec
-07
Jun-
08
Dec
-08
Jun-
09
Dec
-09
Jun-
10
Dec
-10
Jun-
11
Dec
-11
Jun-
12
$ bi
llion
s
Domestic Equities, 4-week moving avg
Lipper Weekly Mutual Fund Flows, ex-ETFs ($ billions)Total Lipper Weekly Flows 1-Week Flow Inflow/(Outflow)
Assets 4-Week Avg This week % of Assets (Cons. Weeks)
All Equity 1,866 (2.3) (4.8) (0.3)% (5)
U.S. Equity 1,415 (2.0) (4.4) (0.3) (5)
Int'l Equity 398 (0.3) (0.3) (0.1) (2)
Global 53 (0.0) (0.1) (0.2) (6)
Equity Income 94 0.3 0.4 0.4 30
Gold & Nat Res 40 (0.0) (0.0) (0.1) (2)
Money Market 2,399 8.1 25.3 1.1 2
All Taxable Bond 1,111 1.4 3.4 0.3 1
Govt Treas 29 0.2 0.1 0.4 5
0.50.6
0.70.80.80.8
0.91.0
1.11.2
0.8
0.0 1.0 2.0
Cons StaplesTelecom Services
UtilitiesIndustrials
EnergyHealth Care
S&P 500Info Tech
FinancialsCons Discr
Materials
% Daily Avg Trading Turnover
Avg Daily 1-WeekTrading Total
Company Ticker Sector Turnover (%) Return (%)Netflix Inc. NFLX Consumer Discretionary 14.8 3United States Steel X Materials 9.0 (2)AK Steel Holding AKS Materials 7.4 2Darden Restaurants DRI Consumer Discretionary 4.4 (9)Tesoro Corp. TSO Energy 4.1 (11)Alpha Natural Resources ANR Energy 4.0 (6)Big Lots Inc. BIG Consumer Discretionary 3.9 (7)Lennar Corp. LEN Consumer Discretionary 3.9 3MEMC Electronic Materials WFR Information Technology 3.8 1Gannett Inc. GCI Consumer Discretionary 3.8 14
S&P 500 Average 1.2 (1)
December 9, 2011 United States
Goldman Sachs Global Economics, Commodities and Strategy Research 14
Correlation and Risk
Exhibit 39: S&P 500 stock and sector average correlation as of December 8, 2011
Exhibit 40: Credit Default Swaps, 5-Year On-the-Run Spreads as of December 8, 2011
Source: Goldman Sachs Global ECS Research. Source: Goldman Sachs Global ECS Research.
Exhibit 41: S&P 500 Cost of Equity = ERP + 10 Year Treasury Yield as of December 8, 2011
Exhibit 42: Risk Barometer and S&P 500 VIX Volatility Index, as of 8-Dec-11 Risk Barometer index is number of standard deviations from the average * 100
We estimate the equity risk premium (ERP) using our DDM framework to model expected future cash flows. We solve for the cost of equity that implies the market is at ‘fair value’ and then deduct the 10-year US treasury.
Note: Metrics included are implied option volatility (S&P 500 and NASDAQ 100), normalized skew, high yield credit spreads, credit derivative swap spreads, mutual fund net flows, and cash levels.
Source: IDC via FactSet, and Goldman Sachs Global ECS Research.
Source: IDC via FactSet, Lipper, ICI, and Goldman Sachs Global ECS Research.
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
Dec
-89
Dec
-90
Dec
-91
Dec
-92
Dec
-93
Dec
-94
Dec
-95
Dec
-96
Dec
-97
Dec
-98
Dec
-99
Dec
-00
Dec
-01
Dec
-02
Dec
-03
Dec
-04
Dec
-05
Dec
-06
Dec
-07
Dec
-08
Dec
-09
Dec
-10
Dec
-11
Dec
-12
Dec
-13
Aver
age
Cor
rela
tion
Average stock correlation
Average sector correlation 0.89
0.65
300
400
500
600
700
800
900
1,000
50
75
100
125
150
175
200
Jan-
10
Mar
-10
May
-10
Jul-1
0
Sep-
10
Nov
-10
Jan-
11
Mar
-11
May
-11
Jul-1
1
Sep-
11
Nov
-11
Jan-
12
High Yield C
DX (bps)
Inve
stm
ent G
rade
CD
X (b
ps)
CDX (IG) (lhs)
CDX (HY) (rhs)
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
Dec
-07
Jun-
08
Dec
-08
Jun-
09
Dec
-09
Jun-
10
Dec
-10
Jun-
11
Dec
-11
Jun-
12
Cost ofEquity
10 YearUS Treas.
Yield
ERP6.8 %
2.0 %
8.8 %
0
5
10
15
20
25
30
35
40
45
50
(200)
(150)
(100)
(50)
0
50
100
150
200
250
300
Dec
-09
Mar
-10
Jun-
10
Sep-
10
Dec
-10
Mar
-11
Jun-
11
Sep-
11
Dec
-11
Mar
-12
S&P 500 VIX
Risk
Bar
omet
er
Risk Aversion Increasing
Risk Aversion Decreasing
8-Dec-11
Risk Barometer (LHS)
S&P 500 VIX (RHS)
31
88
December 9, 2011 United States
Goldman Sachs Global Economics, Commodities and Strategy Research 15
Goldman Sachs Recommendations and Forecasts
Exhibit 43: Goldman Sachs Recommended Sector Weightings (a) as of December 8, 2011
Exhibit 44: Goldman Sachs US Economics quarterly GDP forecasts as of December 8, 2011
(a) Sector weightings last rebalanced on September 14, 2011.
Source: FactSet and Goldman Sachs Global ECS Research.
Source: Bloomberg and Goldman Sachs Global ECS Research.
Exhibit 45: Goldman Sachs 3-, 6-, and 12-month forecasts as of December 8, 2011
Exhibit 46: Goldman Sachs US Economics forecasts as of December 8, 2011
Source: FactSet and Goldman Sachs Global ECS Research. Source: Goldman Sachs Global ECS Research.
Sector Weightings
Total Goldman Sachs Current GS GSReturn Recommended S&P 500 Overweight / Alpha
Sectors YTD Sector Weightings Weight Underweight YTDInformation Technology 4 % 20 % 200 bp (3)bpConsumer Staples 10 11 200 5Telecom Services 1 3 100 (2)
Financials (19) 13 0 (5)Energy 3 12 0 6Health Care 8 12 0 (10)Utilities 14 4 0 (23)
Materials (10) 4 (100) 4Industrials (3) 11 (200) (5)Consumer Discretionary 5 11 (200) (7)
S&P 500 0 % 100 % 0 bp (41)bp
Overweight
Neutral
Underweight
0.4
1.3 2.0
2.5
0.5
1.5 2.0
2.5 2.0 2.0
2.5 2.5
0.0 %
0.5 %
1.0 %
1.5 %
2.0 %
2.5 %
3.0 %
3.5 %
4.0 %
Q1A Q2A Q3A Q4E Q1E Q2E Q3E Q4E Q1E Q2E Q3E Q4E
GD
P G
row
th (
qoq
annu
aliz
ed %
)
2011 2012 2013
Goldman SachsEconomics Consensus
Forecastsunits Current 3m 6m 12m
EquitiesS&P 500 level 1234 1150 1200 1250DJStoxx 600 level 238 195 225 250Asia Pac Ex-Japan level 408 340 375 445TOPIX level 745 700 725 800
Ten Year RatesUS % 2.0 2.0 2.3 2.5Euroland % 2.1 2.5 2.8 2.8Japan % 1.1 1.0 1.1 1.3
CurrenciesEuro / US Dollar EUR/$ 1.33 1.33 1.38 1.45Sterling / US Dollar £/$ 1.56 1.48 1.53 1.73US Dollar / Yen $/¥ 78 77 76 74
EnergyBrent Crude Oil $/bbl 108 118 120 128NYMEX Nat. Gas $/mmBtu 3.46 4.00 3.80 3.75
MetalsCOMEX Gold $/troy oz 1713 1785 1840 1940LME Copper $/mt 7710 8000 9000 9500
% Annual Change2011E 2012E 2013E
Real GDP 1.7% 1.6% 2.2%Consumer Spending 2.3 1.5 1.9Total Fixed Investment 6.7 5.5 7.5
Business Fixed Investment 8.8 5.7 6.9Residential Investment (1.6) 4.5 10.3
Federal Government Spending (1.6) (0.9) (2.1)Exports of Goods and Services 6.7 1.7 5.4Imports of Goods and Services 4.7 1.2 5.5
InflationProducer Price Index 6.2 3.3 2.6Headline CPI 3.2 2.2 1.6Core CPI 1.7 1.7 1.3Core PCE 1.5 1.5 1.2
Unemployment Rate 9.0 8.9 9.0Fed Funds Rate 0.1 0.1 0.12-year Treasury Rate 0.3 0.5 1.010-year Treasury Rate 2.0 2.5 3.3
December 9, 2011 United States
Goldman Sachs Global Economics, Commodities and Strategy Research 16
Goldman Sachs Strategy Baskets
US Portfolio Strategy baskets are designed to provide portfolio managers with vehicles to monitor and implement thematic views in the U.S. equity markets. Our
baskets may be found on Bloomberg by typing <GSTH>. The Bloomberg page provides real-time basket performance and current basket constituents. To obtain
access to our baskets on Bloomberg, please contact your Goldman Sachs salesperson.
Exhibit 47: Strategy basket performance and average valuation data as of December 8, 2011
Exhibit 48: Strategy basket total return performance over the last week last week % total return, as of December 8, 2011
Source: FactSet and Goldman Sachs Global ECS Research.
Exhibit 49: US Portfolio Strategy thematic trade recommendations as of December 8, 2011
Results presented should not and cannot be viewed as an indicator of future performance. Further details on performance calculations can be provided upon request.
Source: FactSet and Goldman Sachs Global ECS Research. Source: FactSet and Goldman Sachs Global ECS Research.
Bloomberg Total Return % P/E P/B Div YldTicker 1 wk 1 mo YTD NTM LTM (%)
Macroeconomic Baskets
US Sales GSTHAINT (2)% (3)% 2 % 15x 2.7x 2.0 %International Sales GSTHINTL (2) (5) (7) 14 4.2 1.6Cyc. Attractive Risk-Reward GSTHCARR (1) 16 4.0 1.6Western Europe Sales GSTHWEUR (3) (5) 0 14 3.7 1.1BRICs Sales GSTHBRIC (1) (5) (8) 13 3.6 1.4Dual Beta GSTHBETA (3) (7) (18) 14 2.1 1.1
Fundamental Baskets
High Quality GSTHQUAL (1)% (4)% 14x 4.5x 2.0 %ROE Growth GSTHGROE (2) (5) (7) 13 2.9 1.8Revenue Growth GSTHREVG (2) (5) 19 4.2 1.1High Op Leverage GSTHOPHI (2) (4) 1 14 2.5 1.6Low Op Leverage GSTHOPLO (2) (2) 6 15 4.4 1.5Strong Balance Sheet GSTHSBAL (2) (4) 3 19 5.5 0.8Weak Balance Sheet GSTHWBAL (2) (4) (8) 14 2.2 1.9
Uses of Cash Baskets
Dividend Growth GSTHDIVG (1)% (2)% 2 % 12x 2.4x 3.0 %
Hedge Fund Baskets
High HF Concentration GSTHHFHI (1)% (6)% (2)% 15x 3.5x 1.0 %Low HF Concentration GSTHHFSL (0) (2) 1 15 3.3 2.8Hedge Fund VIP GSTHHVIP (1) (4) (4) 15 4.1 1.3
Valuation Baskets
GARP GSTHGARP (2)% (5)% (1)% 13x 3.0x 1.3 %High Sharpe Ratio GSTHSHRP (1) (4) (3) 12 2.5 1.5
Sector BasketsGlobal Cyclicals GSSBGCYC (1)% (4)% (0)% 14x 2.8x 1.6 %Global Defensives GSSBGDEF (0) (1) 9 15 5.1 1.7Domestic Cyclicals GSSBDCYC 0 (4) (12) 12 1.9 2.3Domestic Defensives GSSBDDEF (1) (2) 6 14 2.9 2.5
S&P 500 (1)% (3)% 0 % 12x 2.1x 2.2 %S&P 500 Average 14 3.1 2.0S&P 500 Median 13 2.2 1.8
(2.7)(2.6)
(2.1)(2.0)(1.9)(1.9)(1.8)(1.8)(1.8)(1.7)
(1.5)(1.5)(1.5)
(1.3)
(1.1)(0.8)
(0.6)
(0.1)
(0.8)
(1.4)
(1.3)
(0.4)
0.1
(4) (3) (2) (1) 0 1
Western Europe Sales <GSTHWEUR>Dual Beta <GSTHBETA>
Low Op Leverage <GSTHOPLO>GARP <GSTHGARP>
Strong B/S <GSTHSBAL>Revenue Growth <GSTHREVG>
Int'l Sales <GSTHINTL>High Op Leverage <GSTHOPHI>
Weak B/S <GSTHWBAL>ROE Growth <GSTHGROE>
US Sales <GSTHAINT>Hedge Fund VIP <GSTHHVIP>
BRIC Sales <GSTHBRIC>Global Cyclicals <GSSBGCYC>
High Quality <GSTHQUAL>Domestic Defensives <GSSBDDEF>
High HF Conc <GSTHHFHI>Dividend Growth <GSTHDIVG>
S&P 500High Sharpe Ratio <GSTHSHRP>Global Defensives <GSSBGDEF>
Low HF Conc <GSTHHFSL>Domestic Cyclicals <GSSBDCYC>
Thematic Trade RecommendationsInitiation Weekly
Date Return Return
BUY Domestic Sales Basket (GSTHAINT); SELL International Sales Basket (GSTHINTL)See 2012 Outlook: Strategies for stagnation (30-Nov-11) 30-Nov-11 (0.0)% 0.3 %
BUY High Quality Basket (GSTHQUAL); SELL S&P 500See US Equity Views (4-Oct-11) 4-Oct-11 0.2 % (0.5)%
BUY Defensives Basket (GSSBDEFS); SELL S&P 500See US Equity Views (4-Oct-11) 4-Oct-11 (3.7)% 0.0 %
BUY Dividend Growth Basket (GSTHDIVG); SELL S&P 500See US Equity Views (5-Aug-11) 5-Aug-11 (0.0)% (0.0)%
BUY High Sharpe Ratio Basket (GSTHSHRP); SELL S&P 500See 2010 Outlook: Cyclical start; defensive finish (7-Dec-09) 7-Dec-09 11.6 % 0.2 %
December 9, 2011 United States
Goldman Sachs Global Economics, Commodities and Strategy Research 17
Constituents of our Domestic Sales Basket <GSTHAINT>
Exhibit 50: Domestic Sales Basket, as of December 8, 2011
Source: Company filings, FactSet and Goldman Sachs Global ECS Research.
Market Cap Non- Market Cap Non-Company Ticker ($ bil) US Sales Company Ticker ($ bil) US Sales
Consumer Discretionary (10% of the Basket) Industrials (11% of the Basket)Target Corp. TGT $ 36 0 % Southwest Airlines Co. LUV $ 7 0 %Lowe's Cos. LOW 31 0 CSX Corp. CSX 23 0Comcast Corp. Cl A CMCSA 62 0 Norfolk Southern Corp. NSC 25 0Time Warner Cable Inc. TWC 20 0 Republic Services Inc. RSG 10 0Kohl's Corp. KSS 14 0 Waste Management Inc. WM 14 6
Quanta Services Inc. PWR 4 7Basket Median 0 %Sector Median 22 Basket Median 0 %
Sector Median 32Consumer Staples (11% of the Basket)
CVS Caremark Corp. CVS $ 51 0 % Information Technology (16% of the Basket)Kroger Co. KR 14 0 Paychex Inc. PAYX $ 11 0 %Walgreen Co. WAG 31 0 SAIC Inc. SAI 4 1Altria Group Inc. MO 59 0 Intuit Inc. INTU 16 5Reynolds American Inc. RAI 24 0 Harris Corp. HRS 4 6
Fiserv Inc. FISV 8 6Basket Median 0 % Fidelity National Information Services Inc. FIS 8 17Sector Median 24 Automatic Data Processing Inc. ADP 25 19
Cognizant Technology Solutions Corp. CTSH 20 22Energy (16% of the Basket) Akamai Technologies Inc. AKAM 5 28
Chesapeake Energy Corp. CHK $ 16 0 %Southwestern Energy Co. SWN 12 0 Basket Median 6 %QEP Resources Inc. QEP 6 0 Sector Median 53Denbury Resources Inc. DNR 6 0EQT Corp. EQT 8 0 Materials (3% of the Basket)Range Resources Corp. RRC 11 0 Nucor Corp. NUE $ 13 0 %Cabot Oil & Gas Corp. COG 8 0 Vulcan Materials Co. VMC 4 1
Basket Median 0 % Basket Median 0 %Sector Median 24 Sector Median 49
Financials (15% of the Basket)Wells Fargo & Co. WFC $ 138 0 % Telecommunication Services (2% of the Basket)U.S. Bancorp USB 49 0 CenturyLink Inc. CTL $ 22 0 %PNC Financial Services Group Inc. PNC 29 0BB&T Corp. BBT 16 0 Basket Median 0 %Charles Schwab Corp. SCHW 15 0 Sector Median 0Simon Property Group Inc. SPG 36 0CME Group Inc. Cl A CME 16 0 Utilities (3% of the Basket)T. Rowe Price Group Inc. TROW 15 0 Southern Co. SO $ 38 0 %
Basket Median 0 % Basket Median 0 %Sector Median 5 Sector Median 0
Health Care (13% of the Basket)UnitedHealth Group Inc. UNH $ 52 0 %Medco Health Solutions Inc. MHS 22 0WellPoint Inc. WLP 24 0Aetna Inc. AET 15 0Humana Inc. HUM 14 0DaVita Inc. DVA 7 0
Basket Median 0 % Domestic Sales <GSTHAINT> Median 0 %Sector Median 35 S&P 500 Median 28
December 9, 2011 United States
Goldman Sachs Global Economics, Commodities and Strategy Research 18
Recent US Portfolio Strategy Publications
Please contact your Goldman Sachs salesperson for access to additional research or if you wish to be added to the US Portfolio
Strategy research distribution list.
Exhibit 51: Recent research from US Portfolio Strategy
Source: Goldman Sachs Global ECS Research.
Latest Market Research Publication Date
US Thematic Views: GARP Update December 1, 2011
2012 US equity outlook: Strategies for stagnation November 30, 2011
US Thematic Views: S&P 500 ROE: Negative impact from Financials and lower leverage October 25, 2011
US Thematic Views: Introducing our High “Quality” Stock Basket <GSTHQUAL> October 13, 2011
US Equity Views: 3Q Earnings Preview: Peak earnings despite slow economic growth October 12, 2011
US Equity Views: S&P 500 earnings in 2012: $98 per share is more likely than $80 October 4, 2011
US Sector Views: Shift Defensive on slower growth and low bond yields September 14, 2011
Recent US Weekly Kickstart: "Conversations we are having with clients" Publication Date
2012 Global Equity Outlook: downside for 3 and 6 months but upside for the full year December 2, 2011
10 conclusions from our latest Hedge Fund Trend Monitor November 25, 2011
Investing in a politicized environment: Watch what they do, not what they say November 18, 2011
Investors uncertain about lower uncertainty; overwrite to enhance limited returns November 11, 2011
Takeaways from 3Q 2011 earnings season: New EPS peak reached, but negative revisions November 4, 2011
Stocks stage a powerful rally following the EU summit but uncertainty remains high October 31, 2011
S&P 500 earnings reach a new high but investors are underwhelmed by how we got there October 21, 2011
Franchise Research Publication Date
The multiple mystery: P/E based on uncertainty metrics August 9, 2011
Rebalancing our strong and weak Balance Sheet baskets July 29, 2011
Portfolio Strategy: The anatomy of ROE: Part 3: S&P 500 Stocks July 12, 2011
Portfolio Passport: US stocks for a growth market world April 12, 2011
Portfolio Strategy: GOAL: Global Opportunity Asset Locator October 6, 2011
Periodical Research Description Frequency Timing / Recent Release
Hedge Fund Trend Monitor Analysis of hedge fund holdings and positioning Quarterly November 21, 2011
Global Dividend Swap Monitor Summary of global dividend swap market and forecasts Monthly December 6, 2011
S&P 500 Beige Book Qualitative assessment of S&P 500 quarterly earnings reports Quarterly November 10, 2011
Strategy Baskets Overview of US Portfolio Strategy thematic baskets Quarterly September 8, 2011
US Monthly Chartbook Monthly report on where to invest in the S&P 500 Monthly December 6, 2011
US Weekly Kickstart Five minute guide to the US equity market Weekly Friday PM
Where to Invest Now Marketing presentation highlighting recent research and best trade ideas Monthly December 1, 2011
December 9, 2011 United States
Goldman Sachs Global Economics, Commodities and Strategy Research 19
Equity basket disclosure
The Securities Division of the firm may have been consulted as to the various components of the baskets of securities discussed in this report prior to their launch; however, none of this research, the conclusions expressed herein, nor the timing of this report was shared with the Securities Division.
December 9, 2011 United States
Goldman Sachs Global Economics, Commodities and Strategy Research 20
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December 9, 2011 United States
Goldman Sachs Global Economics, Commodities and Strategy Research 21
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December 9, 2011 United States
Goldman Sachs Global Economics, Commodities and Strategy Research 22
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