Goldman warns of earnings triple whammy

Corporate earnings reporting season is underway. And even though expectations already are low, Goldman Sachs says there are a trio of risks that could pressure stocks during the current earnings season.

Sure, everybody knows profits for the Standard & Poor’s 500 stock index are seen contracting nearly 8% in the first quarter. But what worries David Kostin, head of the equity team at Goldman Sachs, is that profit expectations for the full year might still be too optimistic.

Currently, Wall Street analysts are expecting the S&P 500 to post earnings growth of 1.6% for the full year.

“But even that (tepid growth) seems more like a best-case scenario,” Kostin wrote in a report, adding Goldman believes full-year earnings may tumble 9% led to the downside by financials and “further energy ... write downs.”

Also worrisome: Kostin isn’t expecting CEOs to be overly optimistic about the second quarter in their post-report guidance to Wall Street. “Most firms will lower (earnings) guidance for the subsequent quarter leading to downward revisions to full-year (profit) forecasts,” he warned.

Finally, the stock market will be hurt by the inability of companies to buy back their own shares during the earnings blackout period, he adds.

“The only source of demand for shares is corporate repurchases,” Kostin wrote. “But more than 75% of S&P 500 firms are unable to execute discretionary buybacks until early May.”