Beruflich Dokumente
Kultur Dokumente
US Weekly Kickstart
S&P 500 closes at YTD high ahead of 1Q 2010 earnings season that commences next week
S&P 500 has returned 7% YTD but most investors trail the index. Hedge funds have
suffered from short positions and returned 2% in 1Q. Core mutual funds returned 5%
reflecting underweight positions in Consumer Discretionary which surged 14% in
two months, twice the market rebound. We include text from Michael Moran’s note
on tax write-offs from health care reform and its implications for corporate behavior.
The Goldman Sachs Group, Inc. 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, see the end of the text. Other
important disclosures follow the Reg AC certification, 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
April 9, 2010 United States: Portfolio Strategy
Conversations we are having with clients: Cyclical positioning and health care tax charges
Clients continue to express optimism regarding the trajectory of US “Sizable tax charges from health care legislation
economic activity and corporate profits heading into 1Q earnings
The federal subsidy that some companies receive for providing qualifying
season. However, many investors – including nearly all hedge funds –
prescription drug coverage to retirees will no longer be tax deductible under
express grave concerns regarding the long-term fiscal position of the US
the new health care legislation. This change will require some companies to
and its implications for interest rates and stock prices. But in the short-term
write off a portion of their deferred tax assets related to retiree health care
they remain bullish and most are fully invested and cyclically positioned.
obligations. In accordance with US GAAP accounting rules, the deferred tax
Most investors lagged the 5.4% total return of the S&P 500 in 1Q. Equity asset must be adjusted in the period of enactment for the effect of an
long/short hedge funds returned roughly 2% while large-cap core mutual enacted change in tax law or rates.
fund managers returned an average of 4.6%.
Subsidy still exists, but tax deduction is limited
Clients we visited this week in Boston were generally receptive to our
Legislation introduced in 2003 provided companies with a 28% tax-free
preference for global cyclical vs. domestic cyclical exposure. However,
federal subsidy if they offered retiree prescription drug coverage that is at
investors expressed frustration that they had missed the rally in Consumer
least actuarially equivalent to Medicare Part D coverage. Even though a
Discretionary stocks which have surged 14% since the market low in early
portion of their cost was offset by the subsidy, employers were still allowed
February compared with 7% for the S&P 500. Consumer Discretionary bulls
to claim a deduction for the entire cost of providing the prescription drug
pointed to recent better-than-expected consumer data and positive earnings
coverage.
revisions. We, along with the Consumer Discretionary bears, argue that
share prices in the sector already reflect the improved economic data. For example, if a company provided $100 of qualifying prescription drug
coverage, it was eligible for a tax-free $28 subsidy. Nonetheless, it was still
We expect global cyclicals will lead S&P 500 towards 1300 as investors
eligible to deduct the full $100 cost of the benefit. Under the new legislation
re-focus on better growth prospects abroad. A revaluation of the CNY
the amount eligible for deduction would be $28 lower, or $72. As the
may help to expedite this shift, in our view. See our note US Sector Views:
amount expected to be deducted in the future will now be lower, the
Global vs. Domestic tug-of-war within the US equity market (March 25).
deferred tax asset related to the deduction will need to be lowered.
payments are being subsidized. If we gross up CAT’s reported retiree health that treatment was accepted by investors. We suspect similar scenarios will
care obligation ($4.5 billion) to account for the roughly 6.1% subsidy, the play out with these tax charges.
pre-subsidy obligation is about $4.8 billion. This implies that there are $300
Second, these charges are non-cash in nature. Investors focusing on cash-
million of subsidies that will not be tax deductible in the future. Applying a
flow and/or using pseudo-cash-EPS metrics will look past these charges.
35% tax rate means that about $105 million of deferred tax assets would
have to be written off. Caterpillar had announced that its tax-related charge Finally, many companies are indicating that the legislation is leading them
would be about $100 million. to revisit the health care benefits they provide their employees and retirees.
In other words, corporate behavior with respect to benefit offerings could
This is, admittedly, a back-of-the-envelope calculation. Actual calculations
change as a result of the new legislation. It was interesting to note in AT&T’s
required to be performed by companies will be much more involved. Even
8-K filed with the SEC on March 26, 2010, in which it disclosed its $1 billion
some companies have indicated that they are still trying to figure out the
charge related to the elimination of the tax deduction for the federal subsidy,
impact of the legislation on their deferred tax assets. Nonetheless, it
that the company devoted one of the four sentences in the filing to note that
provides a quick and simple way for investors or other users of financial
“As a result of this legislation, including the additional tax burden, AT&T will
information to assess the potential materiality of these charges.
be evaluating prospective changes to the active and retiree health care
Largest charges to be concentrated in a handful of companies benefits offered by the company.”
Sizable retiree health care obligations are concentrated in a handful of Some investors may be focused on the potential for employers to reduce
companies and industries. As of the end of 2009, 55 companies in the S&P their health care expenses as a result of the new legislation. How
500 accounted for over 75% of the total amount of retiree health care companies potentially adjust health care benefits being offered to
obligations for all companies in the index and almost half of the total current employees and retirees as a result of the new legislation is
reported obligations were concentrated in just two sectors – still to be seen. However, the comments of some companies seem to
Telecommunication Services and Industrials. indicate that changes are at least being contemplated.
Identifying the population of companies requiring further analysis Reducing or eliminating retiree health care benefits is nothing new for the
corporate sector. US companies have been enacting such changes for the
As noted previously, it is the receipt of the federal subsidy related to this
past several decades. As we noted earlier, however, many of the largest
obligation that will no longer be deductible and which is leading to tax
retiree health care plans today are found in highly unionized companies
charges in the current period. As investors consider where the largest
whose corporate managements cannot unilaterally change the benefits. We
charges will be found, a natural starting point would be with the companies
shall see how employers proceed with any potential efforts to modify these
that have the largest absolute reported obligations.
benefits going forward.
What’s next? Employer response still to come
Don’t forget about public sector employers too
The sizable tax-related charges already reported by some companies have
Finally, we note that potential changes in behavior extend beyond corporate
generally been treated with indifference by investors. Indeed, some firms
employers to state and local governments, despite the fact that they do not
that have announced these charges have seen their share prices rise after
share the same tax impact from the legislation as do their corporate
the announcement. There can be several possible explanations for this.
counterparts. Many governments have sizable retiree health care obligations
First, investors sometimes view tax-related charges as one-time, non- that in recent years have become more transparent with the implementation
operational in nature. Consequently, they (and companies) tend to add these of a new governmental accounting standard, GASB 45. Public sector
incremental expenses back when deriving pro forma earnings. For historical employees tend to be more unionized and have more generous benefit
perspective consider the sizable tax-related charges that many companies packages than their private sector counterparts, further enhancing the size of
booked in 2005 when offered the opportunity to repatriate foreign profits at these liabilities. Any potential changes in employer behavior with respect to
a favorable tax rate under the American Jobs Creation Act of 2004. Many of health care benefits are unlikely to be confined only to private sector
these charges were added back to pro forma earnings by companies and employers.”
* - Conviction list.
8-Apr-08
8-Oct-08
8-Apr-09
8-Oct-09
8-Apr-10
8-Jun-08
8-Aug-08
8-Dec-08
8-Jun-09
8-Aug-09
8-Dec-09
8-Feb-09
8-Feb-10
Health Care (1.1)
(2.0) (1.0) 0.0 1.0 2.0 3.0
1-week Total Return (%)
Source: FactSet, and Goldman Sachs Global ECS Research. Source: FactSet, and Goldman Sachs Global ECS Research.
Exhibit 4: S&P 500 sector performance over time Exhibit 5: BEST and WORST performing S&P 500 STOCKS BY SECTOR
as of April 8, 2010 as of April 8, 2010
Total Return Percentage Change (%) BEST STOCKS WORST STOCKS
1-Week 1-Month 3-Month 6-Month YTD 12-Month Return (%) Return (%)
Financials 2% 8% 8% 10 % 15 % 81 % Sector Ticker 1-week YTD Ticker 1-week YTD
Source: FactSet, and Goldman Sachs Global ECS Research. Source: FactSet, and Goldman Sachs Global ECS Research.
Source: FactSet, and Goldman Sachs Global ECS Research. Source: FactSet, and Goldman Sachs Global ECS Research.
Exhibit 8: TOP 10 performing S&P 500 STOCKS over the last week Exhibit 9: BOTTOM 10 performing S&P 500 STOCKS over the last week
as of April 8, 2010 as of April 8, 2010
Return (%) Return (%)
Company Name Ticker Sector 1-week YTD Company Name Ticker Sector 1-week YTD
Eastman Kodak EK Cons Discr 28 82 Massey Energy Co. MEE Energy (13) 10
Harley-Davidson HOG Cons Discr 12 27 Forest Laboratories FRX Health Care (11) (13)
EOG Resources EOG Energy 12 10 Tesoro Corp. TSO Energy (8) (2)
Wynn Resorts WYNN Cons Discr 11 48 Monster Worldwide MWW Info Tech (6) (9)
Regions Financial Corp. RF Financials 11 63 Penney (J.C.) JCP Cons Discr (5) 18
American Int'l. Group AIG Financials 10 25 IntercontinentalExchange Inc. ICE Financials (5) (5)
Washington Post WPO Cons Discr 10 12 WellPoint Inc. WLP Health Care (4) 7
Zions Bancorp ZION Financials 10 87 D. R. Horton DHI Cons Discr (4) 11
Huntington Bancshares HBAN Financials 9 62 Johnson Controls JCI Cons Discr (4) 18
International Paper IP Materials 9 3 Aetna Inc. AET Health Care (4) 6
S&P 500 Average 1 10 S&P 500 Average 1 10
Source: FactSet, and Goldman Sachs Global ECS Research. Source: FactSet, and Goldman Sachs Global ECS Research.
Source: FactSet, and Goldman Sachs Global ECS Research. Source: FactSet, and Goldman Sachs Global ECS Research.
Exhibit 12: TOP-DOWN vs. BOTTOM-UP: Goldman Sachs vs. Consensus Exhibit 13: REVISIONS: S&P 500 consensus EPS revisions
as of April 8, 2010 as of April 8, 2010
Contribution to EPS Annual earnings growth rates
80
GS Top-Down EPS Bottom-up GS Top-Down Bottom-Up
2010E 2011E 2010E 2011E 2010E 2011E 2010E 2011E
S&P 500 2010E EPS
Energy $10 $15 $10 $12 93 % 45 % 86 % 27 % 79 Consensus
Materials 2 3 2 3 69 15 68 29 Bottom-Up
Telecom Services 3 3 2 2 32 1 (1) 10 $78
Consumer Discretionary 5 5 7 8 5 5 44 18 78
Utilities 3 4 3 4 15 1 11 4
Information Technology 11 12 14 16 7 10 39 14
Industrials 7 8 7 8 6 16 4 18
77
Health Care 12 13 12 13 10 4 7 10
Consumer Staples 9 9 9 10 4 3 5 10
76 Goldman
S&P 500 ex-Financials 63 71 67 77 18 13 25 16 Sachs
Financials Operating EPS 12 19 12 17 251 54 232 49 $76
S&P 500 Operating EPS $76 $90 $78 $95 33 % 20 % 38 % 21 % 75
+ Provisions & Writedowns 5 1 NA NA (63) (82) NA NA
31-Jan
31-Dec
28-Feb
31-Mar
30-Apr
S&P 500 EPS ex-P&W 81 91 NA NA 13 13 NA NA
Source: FactSet, and Goldman Sachs Global ECS Research. Source: FactSet, and Goldman Sachs Global ECS Research.
Revisions
Exhibit 14: EARNINGS and SALES REVISIONS Exhibit 15: Stocks with the most POSITIVE and NEGATIVE EPS REVISIONS
Aggregate dollars % change, as of April 8, 2010 as of April 8, 2010
EPS REVISIONS SALES REVISIONS POSITIVE EPS REVISIONS NEGATIVE EPS REVISIONS
1 month 3 month 1 month 3 month 1 month 3 month 1 month 3 month
10E 11E 10E 11E 10E 11E 10E 11E Ticker Revis. Return Revis. Return Ticker Revis. Return Revis. Return
Information Technology 1.1 % 1.2 % 8.9 % 7.7 % 0.8 % 0.9 % 5.8 % 6.4 % MU 55 % DFS (27)%
10 % 68 % (5)% 9% (30)% 3%
Consumer Discretionary 0.7 0.9 6.7 4.3 (0.2) 0.8 1.4 1.8
LEN 55 0 69 8 HIG (24) 6 (19) 9
Industrials 0.4 0.9 2.8 3.3 0.3 0.2 1.0 1.6
CMA 29 13 65 26 GT (23) (5) (61) (19)
Materials 0.2 (0.3) 3.8 2.7 0.6 0.1 4.3 2.9
AMD 27 9 70 (0) ETFC (22) 2 (389) (6)
Health Care (0.1) (0.1) (0.6) (0.6) 0.1 (0.1) 1.0 0.8
Telecommunication Services (0.1) 0.0 (4.7) (5.8) 0.0 (0.1) 0.1 (0.2) CLF 26 22 100 38 C (20) 26 (61) 25
Consumer Staples (0.1) (0.0) 0.0 (0.1) 0.2 (0.3) 0.8 1.0 DHI 18 (7) NM (1) COG (18) (7) (16) (16)
Utilities (0.3) (0.5) (1.7) (2.6) NM NM NM NM NSM 13 (1) 14 (4) SUN (16) 5 (39) 4
S&P 500 (0.3) (0.1) 1.6 1.0 0.5 0.4 2.0 0.4 X 11 9 (63) 1 XL (16) (0) (11) 6
Financials (1.8) (0.8) (2.4) (1.7) NM NM NM NM ODP 11 5 67 15 APC (14) 3 9 9
Energy (2.6) (2.1) (1.3) (2.3) 1.9 1.1 2.6 (5.7) WYNN 9 25 24 27 RRC (12) (4) (8) (10)
S&P 500 (0)% 4% 2% 4% (0)% 4% 2% 4%
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 16: S&P 500 1-Month Earnings Revisions Sentiment Exhibit 17: 1-Month Earnings Revision Sentiment by SECTOR
as of April 8, 2010 as of April 8, 2010
25 %
60% 30 %
20 % 1-Month Earnings Revision Sentiment by Sector
S&P 500 1-Month 2010 EPS Revision Sentiment (lhs)
[(# pos. revisions - # neg. revisions)/ total revisions]
40% [(# pos. revisions - # neg. revisions)/ total revisions] 20 % 15 %
1-Month Revision Sentiment
Earnings Sentiment
20% 10 % 5%
0%
0% 0%
(5)%
(10)%
(20)% (10)%
(15)%
Price Performance (rhs)
(20)%
(40)% (20)%
Materials
S&P 500
Info Tech
Energy
Telecom Services
Health Care
Utilities
Consumer Discr
Consumer Staples
Industrials
Financials
(60)% (30)%
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Jun-06
Jun-07
Jun-08
Jun-09
Jun-10
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.
Valuation
Exhibit 18: Aggregate valuation metrics for S&P 500 and sectors Exhibit 19: Standard deviation vs. 10-year history (Z-Score)
bottom-up consensus valuation, as of April 8, 2010 bottom-up consensus, as of April 8, 2010
EV/ EV/ Price/ FCF PEG NTM EV/ EV/ Price/ FCF PEG Median
Sales EBITDA Book Yield Ratio P/E Sales EBITDA Book Yield P/E Ratio Z-Score
S&P 500 1.5x 8.8x 2.5x 6.2 % 1.4x 15.1x S&P 500 (0.8) (0.9) (0.8) (1.3) (0.7) 0.7 (0.8)
Materials 1.5 10.5 3.0 4.9 1.8 17.9 Health Care (1.7) (1.6) (1.1) (0.7) (1.7) (0.5) (1.3)
Industrials 1.9 11.7 3.0 7.1 1.7 17.7 Consumer Staples 1.0 (0.3) (0.7) (0.1) (0.8) (1.1) (0.5)
Consumer Discretionary 1.3 8.4 2.9 8.2 1.2 16.9 Telecommunication Services (1.2) (0.8) (0.1) (0.8) (0.1) 1.4 (0.5)
Financials NM NM 1.4 NM 2.0 16.8 Information Technology 0.1 (0.9) 0.9 (0.0) (1.3) (1.2) (0.4)
Information Technology 2.3 10.5 4.2 6.3 1.1 15.5 Utilities NM (0.5) (0.1) NM 0.1 1.3 (0.0)
Telecommunication Services 1.8 5.3 1.7 13.3 3.1 14.8 Consumer Discretionary 2.3 0.4 2.6 (1.4) (0.2) (0.7) 0.1
Energy (0.3) 1.6 (0.4) 1.3 1.2 (0.5) 0.4
Consumer Staples 1.2 9.2 3.7 6.4 1.6 14.7
Materials 1.1 0.8 1.5 0.6 0.7 0.1 0.8
Energy 1.0 7.8 2.2 1.2 1.0 13.4
Industrials 0.8 1.2 1.5 0.7 2.1 2.1 1.3
Health Care 1.2 8.2 2.9 7.7 1.3 12.1
Financials NM NM (1.0) NM 1.3 2.2 1.3
Utilities NM 7.0 1.5 2.8 2.8 12.1
Source: Compustat, FirstCall via FactSet, and Goldman Sachs Global ECS Research. Source: Compustat, FirstCall via FactSet, and Goldman Sachs Global ECS Research.
Exhibit 20: Historical NTM P/E and LTM P/B values for the S&P 500 Exhibit 21: Top stocks by fastest 2010 earnings growth and lowest NTM P/E
aggregate bottom-up consensus valuation, as of April 8, 2010 by sector, as of April 8, 2010
GROWTH VALUE
6 Fastest EPS Growth (%) Lowest P/E (x)
5 P/B Sector Ticker 2010E 2011E Ticker NTM Rel to SPX
2.5
LTM P/B (x)
4
3 Cons Discr CBS 88 20 GCI 8.6 0.6
2
10-yr rolling avg Consumer Staples WFMI 63 13 SVU 8.4 0.6
1
0 Energy HES 82 35 CHK 8.3 0.6
1/76 1/79 1/82 1/85 1/88 1/91 1/94 1/97 1/00 1/03 1/06 1/09
Financials HIG 78 38 AIG 8.2 0.5
15.1
20
15 Info Tech ALTR 92 7 WDC 6.5 0.4
10 10-yr rolling avg Materials IP 68 40 FCX 11.0 0.7
5
0 Telecom Services FTR 59 1 CTL 11.1 0.7
1/76 1/79 1/82 1/85 1/88 1/91 1/94 1/97 1/00 1/03 1/06 1/09 Utilities PPL 70 (4) PPL 8.2 0.5
Source: Compustat, FactSet, and Goldman Sachs Global ECS Research. Source: Compustat, FactSet, and Goldman Sachs Global ECS Research.
Profitability Metrics(b)
CROCI (0.1) (0.5) 0.0 (0.6) 0.8 0.1 0.4 0.9
PROFITABILITY (0.4) (0.8) 0.1 (0.8) 1.2 (0.1) (0.6) 1.3
ROCE (0.4) (0.8) 0.3 (0.7) 0.8 (0.1) (0.0) 2.3
ROE (0.7) (0.6) (0.4) (0.9) 1.0 0.3 (0.3) 1.2
Source: NASDAQ and NYSE via FactSet, IDC, and Goldman Sachs Global ECS Research.
Total Return Percentage Change (%) Weight (%) 1-Week (% Return) YTD (% Return)
Sector SP500 R2000 SP500 R2000 ∆ (bps) SP500 R2000 ∆ (bps)
1-Week 1-Month 3-Month 6-Month YTD
Telecom Services 3 1 0 (0) 36 (3) (2) (87)
Large Cap vs. Small Cap Financials 17 21 2 3 (66) 15 15 (50)
S&P 500 1 4 4 12 7 Utilities 3 3 (0) 1 (97) (2) 4 (664)
Russell 2000 2 5 9 16 12 Information Tech 19 18 1 2 (118) 3 9 (604)
Industrials 10 15 1 2 (145) 14 9 535
Large vs. Small (bps) (155) (66) (476) (341) (526)
Cons Discretionary 10 15 2 3 (149) 13 23 (984)
Materials 4 5 1 3 (182) 6 11 (515)
Growth vs. Value Health Care 12 14 (1) 1 (184) 3 10 (664)
Russell 1000 Growth 0 4 4 13 6 Consumer Staples 11 3 (1) 1 (207) 5 10 (428)
Russell 1000 Value 1 5 5 13 9 Energy 11 5 1 4 (230) 4 10 (665)
Growth vs. Value (bps) (72) (172) (128) 76 (346) Index 100 100 1 2 (155) 7 12 (526)
Source: FactSet, and Goldman Sachs Global ECS Research. Source: FactSet, and Goldman Sachs Global ECS Research.
Exhibit 25: GROWTH vs. VALUE relative performance over time Exhibit 26: LARGE CAP vs. SMALL CAP relative performance over time
Russell 1000 Growth vs. Value, as of April 8, 2010 S&P 500 vs. Russell, as of April 8, 2010
105
110
Value outperforming 103 S&P 500 outperforming
101
105
99
100 97
95
95 93
91
90 89
87
Growth outperforming Russell 2000 outperforming
85 85
Jan-08
Jul-08
Sep-08
Nov-08
Jan-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-08
May-08
Mar-09
May-09
Mar-10
May-10
Mar-08
May-08
Mar-09
May-09
Mar-10
May-10
Jan-08
Jul-08
Nov-08
Jan-09
Jul-09
Nov-09
Jan-10
Sep-08
Sep-09
Source: FactSet, and Goldman Sachs Global ECS Research. Source: FactSet, and Goldman Sachs Global ECS Research.
Germany (Dax) (2) Small-Cap Core Funds 1.7 10.5 0.5 2.3 29 NA
Source: FactSet and Goldman Sachs Global ECS Research. Source: Lipper, Factset, and Goldman Sachs Global ECS Research.
Exhibit 29: GLOBAL EQUITY MARKET performance over time Exhibit 30: International and other MUTUAL FUND performance
as of April 8, 2010 as of April 8, 2010
Price Return (%) USD Avg. Total Return (%) Stdev No. of AUM
1-Week 1-Month 3-Month 2010 YTD 2009
Lipper Indices 1-week YTD 1-week YTD Funds $ bil
Mexico (Bolsa) 1 7 6 11 52 International Equity
Korea (KOSPI) 1 5 3 7 62
Global Funds (0) 4 0.7 2.4 30 183
U.S. (S&P 500) 1 4 4 6 23
International Funds (1) 3 0.4 2.5 30 394
Japan (Nikkei) 0 2 3 6 16
European Funds (1) 1 0.5 2.9 10 19
Australia (ASX 200) 1 4 1 4 69
Emerging Market Funds 1 6 0.3 1.4 29 NA
Brazil (Bovespa) 0 5 (1) 2 144
China (MSCI China) 2 5 (0) 2 63 Real Estate and Natural Resources
UK (FTSE 100) (1) 3 (1) (0) 37 Real Estate 2 12 0.5 1.5 30 39
Europe (DJ Stoxx 600) (2) 1 (4) (2) 32 Natural Resource 1 4 0.5 1.7 9 NA
Germany (Dax) (2) 3 (5) (4) 28
Fixed Income
France (CAC 40) (3) (0) (8) (6) 26
General U.S. Government Funds Index (0) 1 0.2 0.5 29 NA
Spain (IBEX 35) (1) (2) (15) (14) 34
A Rated Bond Funds Index 0 2 0.1 1.0 29 NA
Average (0) 3 (1) 1 49 BBB Rated Funds Index 0 3 0.1 1.4 30 NA
Source: FactSet, and Goldman Sachs Global ECS Research. Source: Lipper, FactSet, and Goldman Sachs Global ECS Research.
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.
Fund Flows
Exhibit 32: Domestic equity mutual fund flows, 4-week moving average Exhibit 33: Weekly mutual fund flows and assets tracked by AMG
week ended April 7, 2010 Week ended April 7, 2010; excluding ETFs
Jan-94
Jan-96
Jan-98
Jan-00
Jan-02
Jan-04
Jan-06
Jan-08
Jan-10
Govt Treasury 18 0.3 0.0 0.2 26
Source: Compustat, FactSet, and Goldman Sachs Global ECS Research. Source: Compustat, FactSet, and Goldman Sachs Global ECS Research.
Exhibit 34: Average daily TRADING TURNOVER over the last week Exhibit 35: Top ten S&P 500 STOCKS by daily average trading turnover
by sector, as of April 8, 2010 as of April 8, 2010
Source: Compustat, FactSet, and Goldman Sachs Global ECS Research. Source: Compustat, FactSet, and Goldman Sachs Global ECS Research.
400
90
81
300 All time high on 20-Nov-08
75
Risk Aversion
200 Increasing
60
100
45
0
(100) 30
Risk Aversion 16
(200) Decreasing
15
8-Apr-10
(300) 8-Apr-10
0
Dec-94
Nov-95
Nov-96
Nov-97
Nov-98
Nov-99
Nov-00
Nov-01
Nov-02
Nov-03
Nov-04
Nov-05
Nov-06
Nov-07
Nov-08
Nov-09
Nov-10
Jan-90
Jan-92
Jan-94
Jan-96
Jan-98
Jan-00
Jan-02
Jan-04
Jan-06
Jan-08
Jan-10
Jan-12
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: Goldman Sachs Global ECS Research. Source: Goldman Sachs Global ECS Research.
Exhibit 38: S&P 500 stock and sector average correlation Exhibit 39: Credit Default Swaps, 5-Year On-the-run Spreads
as of April 8, 2010 as of April 8, 2010
300 1,800
1.0
1,600
0.9 Average sector correlation 250 CDX (HY) (rhs)
0.7
1,000
0.6
150 800
0.5 600
0.37
0.4 100
400
0.3 200
50
0.2 CDX (IG) (lhs) 0
0.1 0 (200)
Average stock correlation
Dec-07
Jun-08
Aug-08
Dec-08
Jun-09
Aug-09
Dec-09
Oct-07
Apr-08
Feb-08
Oct-08
Apr-09
Feb-09
Oct-09
Apr-10
Feb-10
0.0
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
Source: Goldman Sachs Global ECS Research. Source: Goldman Sachs Global ECS Research.
Source: Goldman Sachs Global ECS Research. Source: Goldman Sachs Global ECS Research.
Exhibit 42: Goldman Sachs COMMODITY and CURRENCY forecasts Exhibit 43: Goldman Sachs US Economics forecasts
as of April 8, 2010 as of April 8, 2010
Forecasts % Annual Change
units Current 3m 6m 12m 2009A 2010E 2011E
Real GDP (2.4)% 2.5% 2.4%
Energy
Consumer Spending (0.6) 1.9 1.4
WTI Crude Oil $/bbl 85.39 92.00 97.00 96.50
Total Fixed Investment (18.4) (3.5) 4.1
NYMEX Nat. Gas $/mmBtu 3.91 5.50 5.50 6.00
Business Fixed Investment (17.8) (3.5) 2.3
RBOB Gasoline $/gal 2.32 2.44 2.50 2.39 Residential Investment (20.5) (3.7) 10.9
Metals Federal Government Spending 5.2 5.2 4.1
LME Copper $/mt 7892 7850 8045 7825 Exports of Goods and Services (9.6) 12.2 7.5
London Gold $/troy oz 1153 1260 1315 1390 Imports of Goods and Services (13.9) 7.9 2.5
London Silver $/troy oz 17.98 21.00 21.90 23.20 Core CPI 1.7 0.8 0.1
Currencies Unemployment Rate 9.3 9.8 10.1
Euro / US Dollar EUR/$ 1.34 1.35 1.35 1.35 Fed Funds Rate 0.1 0.2 0.2
2-year Treasury Rate 0.9 0.9 2.0
US Dollar / Yen $/¥ 93.1 92.0 94.0 98.0
10-year Treasury Rate 3.8 3.3 4.0
Sterling / US Dollar £/$ 1.52 1.55 1.61 1.61
Source: Goldman Sachs Global ECS Research. Source: Goldman Sachs Global ECS Research.
Hedge Fund VIP GSTHHVIP 1 4 9 19 4.4 0.9 Exhibit 46: US Portfolio Strategy thematic trade recommendations
Valuation Baskets as of April 8, 2010
Thematic Trade Recommendations
GARP GSTHGARP 1% 4% 7% 17x 4.5x 1.1 %
Initiation
High Sharpe Ratio GSTHSHRP 1 4 7 16 3.5 1.2 Date Return
Use of Cash Baskets BUY High Sharpe Ratio Basket (GSTHSHRP); SELL S&P 500
See 2010 Outlook: Cyclical start; defensive finish (7-Dec-09). 8-Dec-09 3.8 %
Dividend Growth GSTHDIVG 0% 4% 6% 14x 5.3x 3.4 %
BUY High Oper. Leverage (GSTHOPHI); SELL Low Oper. Leverage (GSTHOPLO)
Invest for Growth GSTHINVG 0 3 6 16 4.5 1.5
See Macro to Micro Shift Part II: 2H 2009 Update (20-Jul-09). 20-Jul-09 10.6 %
S&P 500 1% 4% 7% 15x 2.5x 1.9 % BUY BRICs Sales Basket (GSTHBRIC); SELL S&P 500
S&P 500 Average 18 3.6 1.6 See Portfolio Passport: Coming to America (5-Nov-08). 4-May-09 13.9 %
S&P 500 Median 16 2.5 1.2
Source: FactSet, and Goldman Sachs Global ECS Research. Source: FactSet, and Goldman Sachs Global ECS Research.
1
The ability to trade these baskets will depend upon market conditions, including liquidity and borrow constraints at the time of the trade.
Health Care
Gilead Sciences GILD Neutral $45.82 21 % 25 % 0.83
Baxter International Inc. BAX Neutral 57.70 15 20 0.75
Cephalon Inc CEPH Buy 66.78 16 27 0.58
Tenet Healthcare Corp. THC Buy* 5.95 24 48 0.51
Amgen AMGN Buy 60.52 13 27 0.49 Basket Median 13 % 27 % 0.55
Boston Scientific BSX Sell* 6.98 13 45 0.30 S&P 500 Median 7% 28 % 0.26
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