Yesterday’s Wall Street Journal contains a summary of projections by Goldman equity strategist, David Kostin, for US stock market returns this year and beyond.
His view is that stocks will be flat over the coming 12 months–investors will collect dividends but no capital gains. After that, stocks will average +5% yearly total returns for the rest of the decade, miniscule a meaning they’ll continue to collect dividends plus, on average, miniscule capital gains.
Of course, like any brokerage house, Goldman has a plethora of strategists, not just Mr. Kostin. The ones waiting in the wings cover the waterfront from bullish to bearish with their views, so at least one is bound to be right–and can come off the bench to replace Kostin if need be.
Still, Mr. Kostin has the title, and he’s the one who makes the rounds of brokerage clients to present Goldman’s views. So his is most likely the firm’s official position–and agrees at least in spirit with the beliefs of Goldman’s top management.
Kostin’s is a peculiar stance for a broker, nonetheless.
In the real world, no brokerage research report is intended to be “pure” scholarship. Yes, every document is intended to show off the firm’s deep factual knowledge and analytical skills. But it’s also supposed to produce revenue by flattering the firm’s investment banking clients and persuading its money management customers to transact.
A bearish strategy may do the first but it certainly won’t do the second. It won’t produce the kind of revenue a document like this is aimed at achieving.
So why publish something like this?
I can think of several reasons:
–it’s possible that Goldman figures that institutional money management clients aren’t going to generate much trading revenue from now on (the substitution of index funds for active managers?), so it no longer matters that much what the firm tells them,
–maybe Goldman senses that a pollyannaish story from, say, Senior Strategist Abby Joseph Cohen, would go down worse,
–perhaps the Kostin view is actually bullish, or at least as bullish as Goldman is willing to be. Maybe Goldman anticipates a big stock market selloff as interest rates begin to rise and intends the idea that, given time, investors will steadily regain what they’ve lost (plus some) to stand as a beacon of hope.
–it could be that Goldman wants to sell non-traditional products to investment managers as a way of dealing with potential hard times.