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Pro Analysis

Goldman Sachs sees a new threat to the bull market

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An improving job market is creating the next snag for the stock market, Goldman Sachs analysts said.

"We expect rising wages will prevent significant further expansion in S&P 500 margins during the next few years absent corporate tax reform," David Kostin, chief U.S. equity strategist, and strategist Ben Snider said in a Tuesday report.

Profit margins for S&P 500 companies hit a record high of 9.2 percent in the third quarter of 2014 and — excluding energy firms — have stagnated since, the report said. Meanwhile, U.S. labor costs as a percentage of S&P 500 companies' revenue have steadily increased to above 10 percent, according to Goldman.

The analysts estimated that every percentage point increase in labor cost inflation weighs on S&P 500 earnings per share by 0.8 percent. Industrials and consumer discretionary are "most at risk from rising wages" given historically stretched labor costs and margins, the report said.