LONDON (Bloomberg) - Goldman Sachs Group Inc. strategists say the US corporate earnings season got off to an "awful" start and shares will drop as companies slash forecasts for the rest of 2008.

"We expect generally disappointing results and a swath of lowered profit guidance that will drive the Standard & Poor's (S&P) 500 Index lower," a team led by David Kostin, Goldman's New York-based US investment strategist, wrote in a report today. General Electric Co. (GE), Alcoa Inc. and United Parcel Service Inc. reported profits or forecasts that trailed analysts' estimates last week.

Mr. Kostin, 44, said last month that the S&P 500 may finish the year at 1,380, down six percent from the end of 2007. The forecast is the most bearish since at least 2000 by Goldman, which profited as other investment banks lost money on sub-prime mortgages. Morgan Stanley, the second-biggest securities firm, said today that profits are too high relative to the size of the US economy.

The forecasts conflict with estimates by Wall Street analysts that earnings at S&P 500 companies will rise 14 percent in the third quarter and 55 percent in the fourth. Predictions of a "speedy recovery" are too optimistic and stocks will drop when investors view estimates with "appropriate skepticism," Mr. Kostin wrote.

Goldman said worse-than-expected earnings from GE, the world's fourth-largest company by market value, and Alcoa, the third-biggest aluminum producer, are harbingers. Analysts have reduced expectations for S&P 500 earnings growth during the second half of 2008 "only slightly" even after cutting first-quarter projections by 17 percent, Mr. Kostin wrote.

The S&P 500 retreated 2.7 percent to 1,332.83 last week after GE said the credit-market crisis caused an unexpected earnings decline, while slowing economic growth and rising energy prices eroded profit at Alcoa and UPS. The index slipped 0.3 percent to 1,329 at 11.26am in New York yesterday.

Mr. Kostin's predecessor as Goldman's chief forecaster for the US stock market, Abby Joseph Cohen, predicted in December the S&P 500 would rise 14 percent to 1,675 in 2008. Ms Cohen, 56, was known for her bullish predictions during the 1990s at New York- based Goldman, the most-profitable securities firm.

Analysts surveyed by Bloomberg have cut their projections for first-quarter earnings at S&P 500 companies every week since January 4.

They now predict a 12.3 percent drop, compared with an estimate for an increase of 4.7 percent at the start of 2008.

Analysts are currently estimating 2008 profit growth of 11 percent for S&P 500 companies, down from 15 percent at the start of the year, according to Bloomberg data.

The index has declined 15 percent since reaching a record in October.

In December, Goldman reported record earnings of $3.22 billion in the worst quarter for Wall Street in six years.

The firm outmaneuvered competitors by profiting from the mortgage-backed securities market's slump.

"This is the first time in history where we have a very significant percentage of the Wall Street population that can make just as much money on the market going down as they can going up," Laszlo Birinyi, president of investment research and management firm Birinyi Associates Inc., said in an interview on Bloomberg Television last week.

Alcoa marked the start of the US earnings reporting season on April 7 when it became the first company in the Dow Jones Industrial Average to post results.

Wachovia Corp., the fourth-largest US bank, reported an unexpected loss because of sub-prime-infected mortgage holdings, cut its dividend and said it will raise about $7 billion.

Johnson & Johnson, the world's largest maker of consumer health-care products, is scheduled to report earnings tomorrow, while International Business Machines Corp., the biggest computer-services company, will follow a day later. Merrill Lynch & Co. reports April 17, while Citigroup Inc. posts results April 18.

Merrill and Citigroup will reveal at least $15 billion more of sub-prime mortgage writedowns this week, The Sunday Times of London reported on Sunday, citing analysts it did not identify.

After-tax corporate profits relative to US gross domestic product are "well above sustainable levels," Morgan Stanley strategist Gerard Minack wrote in a report yesterday. He said a US recession and increased competition will cause earnings to decline.

"If profits fall as much as I think they could, then markets are not cheap," Mr. Minack wrote.