Goldman’s Chief Equity Strategist, David Kostin, is sticking to his year-end target on the S&P of 1250. He says concerns over the fiscal cliff and tax law changes should keep the market under pressure (via Business Insider):
“Debate regarding a two-year extension to the 2001/2003 Bush income tax cuts was not resolved until December 17th, 2010. Last year’s decision to extend payroll tax cuts was not finalized until December 23rd, 2011. The current challenge is significantly more complex. Divergent views on tax policy, defense spending, and entitlements need to be resolved in a short lame-duck session of Congress. Political platitudes about compromise will abound during the coming weeks but some disagreements will surely arise. We assign a 55% likelihood that an agreement is reached by year-end.
…Capital gains taxes are scheduled to rise at the start of 2013 from a 15% rate to 23.8% (20% plus a 3.8% tax associated with the Affordable Care Act). The nearly 9 pp hike in capital gains taxes is similar in magnitude to the 9 pp rise in 1970 and the 8 pp rise in 1987. In both prior cases S&P 500 posted negative returns in December as investors locked-in the lower tax rate. The S&P 500 fell by 1.9% in December 1969 and 2.8% in December 1986 running counter to trend given December has the second highest average monthly return (1.5%) and a 75% hit rate of positive return since 1928.”
This is in stark contrast to his 2013 outlook. Kostin has a S&P target of 1575 or 26% higher than his 2012 year-end target.