Goldman Sachs warned Thursday that a global spread of the coronavirus could wipe out U.S. corporate growth completely in 2020.
The firm cut its S&P 500 earnings estimate by $9, while saying it expects no earnings growth. In 2021, the firm sees $8 less in S&P 500 earnings and a growth rate of just 6%.
Goldman now sees baseline earnings-per-share estimates of $164 in 2020 and $175 in 2021, representing 0% and 6% growth, respectively.
“Our reduced profit forecasts reflect the severe decline in Chinese economic activity in 1Q, lower end-demand for U.S. exporters, disruption to the supply chain for many U.S. firms, a slowdown in U.S. economic activity, and elevated business uncertainty,” said Goldman Sachs analyst David Kostin.
Kostin said investors should shift their portfolio weighting to more defensive equities like real estate and utilities. The firm downgraded non-defensive sectors like industrials to neutral from overweight and financials to underweight from neutral.
“Real estate companies generate 81% of their revenue domestically and have significant recurring revenues. Utilities have similar revenue characteristics but the historical relative valuation is more attractive for real estate,” Kostin wrote. “Industrials and financials are both pro-cyclical so a slowing economy represents a challenge for both sectors. However, financials has the added headwind of falling interest rates.”
Goldman Sachs also noted that while global economic growth is slowing, the U.S. is in better position that other regions around the world.
However, the threat of the coronavirus turning from an epidemic (local outbreak) to a pandemic (global outbreak) has weighed on stocks in the U.S. and will continue to do so until coronavirus is brought under control.