(Bloomberg) -- Profit growth for S&P 500 companies will drop dramatically over the next two years as the benefit of tax cuts dissipates, economic growth slows and margin pressure builds, according to Goldman Sachs strategists led by David Kostin.

  • EPS estimated to grow 23% to $163 in 2018, 6% to $173 in 2019, and 4% to $181 in 2020
  • “The rapid growth rates of 2018 are unlikely to continue into 2019 and 2020 as the U.S. economy moves later into the cycle,” the strategists wrote in a note to clients late Wednesday.
    • “ We have already seen signs of a tighter labor market, rising wages and input costs, and a stronger trade-weighted U.S. dollar, which represent headwinds to profit growth.”
  • The firm’s economists expect U.S. GDP to decelerate to 1.6% in 2020 from 2.9% in 2018.
    • Every 100 basis point change in U.S. economic growth results in a $5 change to S&P 500 EPS, Kostin’s team estimates.
  • Net margins for S&P 500 firms expected to “plateau” at 11.2% over the next two years.


  • Nov. 8, Tech, Energy Face Risk of Earnings Downgrades, Bernstein Says
  • Nov. 6, Credit Suisse Calls Fast P/E Deflation ‘Compelling Buy Signal’

--With assistance from Aoyon Ashraf.

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net

To contact the editors responsible for this story: Courtney Dentch at cdentch1@bloomberg.net, Richard Richtmyer

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