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October 30, 2009 United States: Portfolio Strategy: US Weekly KickstartGoldman Sachs Global Economics, Commodities and Strategy Research 3
The charts we are watching: Money flow and 3Q 2009 earnings season
Exhibit 1:
$600 billion of potential flows into the US equity market
as of October 25, 2009
Exhibit 2:
We expect taxable money market assets to fall from $3.0 to $2.0trillion;
as of October 14, 2009
CashPotential Net$ billionsPositionDescription / rationaleEquity InflowRetail / Individual
Money Market Assets
$ 1,920
Re-allocation to risk assets
$ 300
Savings Deposits
5,800
Re-allocation to risk assets
50
Institutional Investors
Equity Mutual Funds
130
Liquidity ratio near record low
-
Hedge Funds
-
Increase in leverage
50
Foreign Investors
-
Net purchases at 10-yr average
100
Corporations
Cash & Equivalents
760
Buybacks and M&A forecast
200
New Equity Issuance
-
De-leveraging and IPOs
(150)
DB Pension Investment
-
New contributions to plan
50
TOTAL
$ 8,610$ 600
% of S&P 500 Market Cap
6%
$3.0 tn$3.4 tn
0.51.01.52.02.53.03.54.0
J a n - 9 6 J a n - 9 7 J a n - 9 8 J a n - 9 9 J a n - 0 0 J a n - 0 1 J a n - 0 2 J a n - 0 3 J a n - 0 4 J a n - 0 5 J a n - 0 6 J a n - 0 7 J a n - 0 8 J a n - 0 9 J a n - 1 0 J a n - 1 1
M o n e y M a r k e t M u t u a l F u n d A s s e t s ( $ t r i l l i o n )
Money Market Mutual Fund Assets
($ trillions)Taxable FundsAll Funds
Ocotober 2007
$2.0 tn
GS forecast
Source: ICI, Federal Reserve and Goldman Sachs Global ECS Research. Source: ICI via Haver Analytics and Goldman Sachs Global ECS Research.
Exhibit 3:
Few “End Demand” companies are beating sales estimates Exhibit 4:
“Intermediary” goods companies are posting their strongestquarter of sales surprises relative to “End Demand” companies
3Q Surprises
Average Return# ofPositiveNegative
SinceSince
Co'sSalesEarningsSalesEarnings
Report30-Sep
Raw Materials
19
26%
42% 11% 11% (291)bp 166 bp
Intermediary Goods
77
46
64 8 3 (195) (161)
End Demand1902652185(101)(86)Total28631%55%15%5%(139)bp(90)bp
# of
Stage-of-Processing Split
Median SurpriseCo's
RawMidEnd
SalesEarningsSales Beats
87 6% 40% 54%
5%
17%
Earnings Beats
156 5 31 63
1
15
Sales In-Line
151 8 24 68
(0)%
6%
Earnings In-Line
117 8 22 70
(0)Sales Misses
42 5 14 81
(4)%
1%
Earnings Misses
13 15 15 69
(5)Total (# of stocks)
280 19 77 184
0%
9%
(20)pp(10)pp0pp10pp20pp30pp
D e c - 0 0 D e c - 0 1 D e c - 0 2 D e c - 0 3 D e c - 0 4 D e c - 0 5 D e c - 0 6 D e c - 0 7 D e c - 0 8 D e c - 0 9
"Intermediary" less "End Demand"Sales Surprises (% of companies)
3Q09(46% - 26%)
Source: Compustat, I/B/E/S, and Goldman Sachs Global ECS Research. Source: Compustat,I/B/E/S, and Goldman Sachs Global ECS Research.
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