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$GS: Have No Fear, There Are No Bubbles Here

“Hold on to your stocks and don’t be rattled by fear of bubbles, advise Goldman Sachs researchers.

“Our key takeaway is that both the odds and the penalty of being wrong when underweighting U.S. equities are very high,” Goldman Sachs researchers emphasize in a recent report.

Although U.S. equities are expensive compared with their historical standards and other developed and emerging markets, high valuations are not a good reason to underweight stocks, state Goldman’s Investment Strategy Group’s Chief Investment Officer Sharmin Mossavar-Rahmani and Managing Director Brett Nelson.

They cite four reasons why they see no bubble troubles in equities.

First, they note, “Credit growth, a key feature of financial asset bubbles, is not excessive.” The latest year-over-year credit growth was 4.4 percent, well below the average of 7.3 percent since 1947 and near the lowest in more than 60 years.

Second, investor flows into U.S. equities, which turned positive in early 2013 after five years of outflows, have also been subdued.

Third, sentiment toward the United States still has more room to improve due to the nation’s many strengths.

And finally, higher valuations do not foreshadow a market “implosion” or even negative returns. In fact, the Goldman team predicts earnings-per-share growth of about 6 percent for 2014….”

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