Goldman sees low earnings growth and lackluster market returns through 2018

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Goldman Sachs on Monday reduced earnings estimates for the through 2018, citing a challenging economic environment.

The cautious outlook by Goldman came as the S&P index trades at about 2 percent from its all-time high, and as many Wall Street pundits cheered better-than-expected third-quarter earnings reports this month.

"The U.S. economy will remain stuck in a slow secular growth regime " Goldman's chief U.S. equity strategist, David Kostin, wrote in a note to clients.

"S&P 500 margins will increase slightly next year, but remain well below the peak."

Goldman now sees just 5 percent earnings growth for S&P 500 companies this year, followed by 10 percent growth in 2017 and back down to a 5 percent pace in 2018. Accordingly, the firm sees the S&P 500 falling about 3 percent from now until the end of the year. Its year-end S&P 500 forecasts for 2017 of 2,200 and for 2018 of 2,300 call for gains of about 2 percent and 6 percent, respectively, from current levels.