Stocks still offer investors the best prospects for relative returns, Goldman Sachs' European equities strategist told CNBC on Monday, as equities exit a "hope" phase and enter a "growth" phase.
Back in March 2012, Goldman Sachs said the prospects for making money inequities relative to bonds were as good as they had been for a generation. The brokerage was proven right: the Dow Jones industrial average gained 16.6 percent over the past 18 months through the end of trading Friday.
"Our argument back then was that risk premia were just too high in equities and they were discounting too much bad news. At the same time, risk premia were too low in bond markets, so the relative prospective returns for equities were the best they'd been for more than a generation,"Peter Oppenheimer said.
But now, valuations are moving up in equities and Goldman believes economic growth, profit growth and dividends will drive stocks, rather than the attractive pricing.
"We think that will drive still much better returns inequities than fixed income, either government bonds or credit, moving forward,"he said.
In a note to clients discussing the bullish call, Goldman said equities had now entered a "growth" phase – the longer but more moderate stage of the bull market when equities are driven more by earnings growth rather than valuations.
"Over the next three or four years,there's the prospect for earnings to grow quite strongly. And you've got high dividend yields to start with," Oppenheimer said.
European stocks were more attractive than U.S. stocks. The U.S. looks fundamentally strong, Goldman said,but valuations were above average and all the good news was already priced in.
"Expectations are more depressed in Europe so there is a valuation gap to be caught up," Oppenheimer said.
The brokerage is also careful about wading into the battered emerging markets.
"Over the medium term, we prefer developed markets to emerging markets because some of the big supports in emerging markets over the last decade – very cheap labor costs, falling real interest rates, booming commodity prices- are moving in the opposite direction," Oppenheimer said.