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Goldman: Earnings, buyback blackout to hit market

Traders work on the floor of the New York Stock Exchange.
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With the end of the third quarter in sight, Goldman Sachs predicts the upcoming earnings season will not be pretty. That, and the accompanying blackout period for stock buybacks, should cause volatility to remain in the fourth quarter.

The firm told clients to hide out in high quality stocks with large domestic sales.

"For a second consecutive quarter, economic turmoil in China alongside mixed US economic activity and a generally strengthening dollar will likely weigh on corporate results," wrote Goldman's equity strategist David Kostin.

Analysts' bottom-up consensus calls for a 3 percent decline in earnings per share during the third quarter from a year ago, Kostin said.

The biggest culprit for the overall decline will be energy, which according to analysts' forecasts, will see earnings plunge nearly 70 percent.

Removing energy out of the mix, as has been the norm in recent quarters to gauge the strength of sales in other areas of the market, earnings growth is expected to rise by 6 percent, Goldman said.

The market is also entering the week without one of its biggest backers: share buyback programs.