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Pro Analysis

Goldman: Earnings season to knock stocks. Here's how to play it

The Goldman Sachs booth on the floor of the New York Stock Exchange
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The Goldman Sachs booth on the floor of the New York Stock Exchange

The sideways trading market in the past three months may be about to head down, as a disappointing earnings season will cause investors to sell stocks, according to a new report from Goldman Sachs.

"We see a weak 3Q [third quarter] reporting season coupled with negative 4Q EPS [fourth quarter earnings per share] revisions pushing stocks 2% lower to our year-end target of 2100," warns David Kostin, Goldman's chief U.S. equity strategist.

In the next three weeks, 66 percent of S&P 500 companies are slated to report third-quarter earnings, with consensus expectations pointing to a 1 percent drop in earnings for the S&P index. Similarly, revenue figures are projected to increase by 4 percent, but top-line growth will be offset by shrinking margins across most sectors, said Kostin.

Here's how the investment bank advises clients to shelter from the volatility: