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July 23, 2010 United States: Portfolio StrategyGoldman Sachs Global Economics, Commodities and Strategy Research 3
The charts we are watching
Exhibit 1: Positive surprises in 2Q earnings have not been reflected in 3Q – 4Q
as of July 22, 2010
 Exhibit 2: We forecast 2011 S&P 500 ROE of 17%
Source: Compustat, FirstCall, I/B/E/S and Goldman Sachs Global ECS Research.
 
Source: Compustat, and Goldman Sachs Global ECS Research.
Exhibit 3: Our ROE forecast implies upside to S&P 500 P/B multiple Exhibit 4: Operating margins account for two-thirds of the typical ROE cycle
Source: Compustat, and Goldman Sachs Global ECS Research. Source: Compustat, and Goldman Sachs Global ECS Research.
1618202224
   3   1  -   D  e  c   3   1  -   J  a  n   2   8  -   F  e   b   3   1  -   M  a  r   3   0  -   A  p  r   3   1  -   M  a  y   3   0  -   J  u  n   3   1  -   J  u   l   3   1  -   A  u  g   3   0  -   S  e  p
4QE $223QE $212QE $201Q $19
2010 S&P 500 Consensus EPS by Quarter 
14.911.719.715.016.411.412.511.517.012.220.09.9
171815.517
810121416182022
     D    e    c   -     7     5     D    e    c   -     7     7     D    e    c   -     7     9     D    e    c   -     8     1     D    e    c   -     8     3     D    e    c   -     8     5     D    e    c   -     8     7     D    e    c   -     8     9     D    e    c   -     9     1     D    e    c   -     9     3     D    e    c   -     9     5     D    e    c   -     9     7     D    e    c   -     9     9     D    e    c   -     0     1     D    e    c   -     0     3     D    e    c   -     0     5     D    e    c   -     0     7     D    e    c   -     0     9     D    e    c   -     1     1     D    e    c   -     1     3
   S   &   P   5   0   0  r  e   t  u  r  n  o  n  e  q  u   i   t  y   (   %   )
S&P 500ex-FinancialsS&P 500
GSForecast
R² = 0.39
0.00.51.01.52.02.53.03.54.04.55.05.56.08 9 10 11 12 13 14 15 16 17 18 19 20 21 22
   S   &   P   5   0   0   P   /   B  r  a   t   i  o   (   L   T   M   )
S&P 500 ROE (LTM, %)March 2010P/B:2.4ROE: 14%Target RangeP/B:2.5 to 3.5ROE: 17% to 18%
 
(12)(316)247(225)346(485)527(420)538(408)450(184)99(13)10110260(403)262(67)
(1000)(800)(600)(400)(200)02004006008001000
     1     9     7     5     1     9     7     9     1     9     8     3     1     9     8     4     1     9     8     6     1     9     8     9     1     9     9     1     1     9     9     7     2     0     0     2     2     0     0     8
   C  o  n   t  r   i   b  u   t   i  o  n   t  o   R   O   E  c   h  a  n  g  e   (   b  p  s   )
ROE cycle dateOperatingmarginsAll otherfactorsPeakTrough
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