Goldman's Kostin: The market is highly valued but that's good

High valuations in the market today are a result of U.S. corporations that have been running their businesses vigilantly, David Kostin, Goldman Sachs chief U.S. equity strategist, said on Tuesday.

"U.S. corporations are operating with very strong balance sheets, and they are operating with very high margins," he told CNBC's "Squawk on the Street." "That's what investors are ultimately looking for and it's reflected in pretty high valuations."

Read MoreWhy Fed trade reminds me of 2007, 2008: El-Erian

He added that the valuations are not "the most extreme but are certainly at a higher range of values than we've seen in a long time."

David Kostin, chief U.S. equity strategist at Goldman Sachs Group.
Scott Eells | Bloomberg | Getty Images
David Kostin, chief U.S. equity strategist at Goldman Sachs Group.

He attributes some of that record profitability to lower tax rates, lower interest rates, outsourcing and technology. But he also said that this earnings season could be a bit messy due to a strong dollar and lower oil prices.

Kostin predicts the market will continue to rise toward the middle of the year but then fade in the second half with the first interest rate hike in September.

Read MoreStop fearing the Fed! The way to make real money

Buybacks will continue as one of the biggest uses of cash this year by companies, he said.