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Goldman Sachs forecasts zero earnings growth for US companies due to coronavirus

U.S. companies are not expected to generate earnings growth in 2020 due to the disruptions caused by the novel coronavirus as it spreads outside China, according to strategists at Goldman Sachs Group Inc.

The investment bank revised down its baseline 2020 EPS forecast for S&P 500 companies to $165 from $174, reflecting zero growth. The EPS estimate for 2021 was also lowered to $175 from $183, representing 6% growth.

The updated forecast incorporates the expectation that the impact of the coronavirus on consumption and the wider economy will become widespread but short-lived, according to Goldman Sachs.

"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," David Kostin, Goldman Sachs Research chief U.S. equity strategist, wrote in a note.

Kostin warned that a more severe pandemic could cause prolonged disruption and even a U.S. recession, which would lead to a 13% decline in S&P 500 earnings in 2020 to $143 per share. Corporate earnings are forecast to rebound by 10% to $158 per share in 2021.

Microsoft Corp. is the latest high-profile U.S. company to warn that the coronavirus outbreak, which started in China, would hurt its financial performance. The company said on Feb. 26 that it does not expect to meet its fiscal third-quarter 2020 revenue guidance for its More Personal Computing segment.

Apple Inc. also said on Feb. 17 that it would likely miss its revenue guidance for the March quarter due to the impact of the coronavirus on production and demand in China.