(Reuters) - Rising inflation, higher commodity prices and lower global economic growth will weigh on margins of S&P 500 <.SPX> companies, said Goldman Sachs, as it forecast a lower 2012 earnings outlook, and reduced its year-end target on the index.
Goldman Sachs, which expects a rebound in U.S. economic growth in the second quarter, lowered its year-end target on the Standard & Poor's 500 index to 1,450 from 1,500.
It estimates U.S. gross domestic product growth to increase from 1.8 percent in the first quarter, to a 3 to 3.5 percent range for the rest of this year and next.
"As we transition into the late expansion phase of the cycle later this year the risk-reward balance for the S&P 500 is likely to become slightly less attractive," the brokerage wrote in its portfolio strategy note to clients.
As such, Goldman revised its sector recommendations with respect to late cycle performance trends, and urged investors to overweight energy and consumer staples companies, and underweight consumer discretionary and utilities stocks.
Energy, consumer staples and information technology companies are likely to post the highest revenue growth in 2012, the brokerage said, as it upgraded consumer staples and healthcare sectors.
"We focus on sectors and stocks best positioned to grow earnings through higher sales," Goldman said.
Consumer staples companies should generate superior sales and earnings growth compared to consumer discretionary as input cost inflation begins to decline in the second half of this year and pricing starts to catch up, the brokerage said.
The brokerage, which expects S&P 500 companies' margins to contract in 2012, forecast 2012 earnings per share of $104, down from its prior view of $106.
It downgraded the information technology sector, and said it expects margins at these companies to reduce in 2012, with many large firms failing to match market earnings and sales growth rates, aside from Apple Inc <AAPL.O>.
The S&P 500 index was down 2.96 points, or 0.22 percent, to 1,317.51.
(Reporting by Tenzin Pema; Editing by Jarshad Kakkrakandy)