Goldman Sachs - we're not expecting a bear market

Goldman Sachs analysts are out with a note today outlining the reasons they're not anticipating an imminent bear market. The timing may be poor considering Wall Street's tumble today, but Goldman Sachs is pointing out some key fundamentals that are missing in order for a proper bear market to develop.

Key quotes(Source: Goldman Sachs)

"Current very low levels of unemployment and strong growth momentum would normally be associated with other risks - in particular tighter monetary policy, a flatter yield curve and rising core inflation. But these remain subdued and without these risks rising, the prospect of a recession and 'cyclical' bear market is low."

"Structural bear market risks are also modest given the absence of major financial imbalances - or at least the shifting of imbalances away from the private sector to the public sector and central banks."

"Slower growth and higher rates prospects point to lower risk adjusted returns this year but not a sustained bear market."

"Elevated valuations are evident across most asset classes. Equities remain attractively valued relative to bonds (Equity risk premia are still elevated)."

"High equity valuations are mainly a feature of the US equity market and much of this can be explained by sector exposure and relative ROE."

"Valuations also need to reflect the impact of share buybacks. The total cash return (the dividend yield plus the buyback yield) has increased in most markets despite collapsing bond yields post the financial crisis."

"Free cash flow yields have also increased alongside higher P/E ratios. Companies are generating higher cash flow with less traditional capital expenditure making cash flow measures perhaps more important than in the past."