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Goldman Sachs: Why we're now in a 'tactical' market

Investors should look for companies that benefit from a steadily improving economy, and that means betting on corporations with high operating leverages like Amazon and EOG Resources, Goldman Sachs' chief U.S. equity strategist David Kostin told CNBC on Tuesday.

Historically high valuations have made the stock market much more challenging for professionals to identify outperformance, Kostin said on "Squawk on the Street." Stocks are trading at an average multiple of 17 times earnings, Kostin said, and the pool of returns has been the narrowest in decades.

"The starting point of valuations makes it more difficult for equities to be rising," Kostin said. "Which is why there's more opportunity to choose within the market. It's really a tactical market as opposed to more strategy."

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Shifting focus to the bond market, Kostin said he was surprised by a big swing downward by 10-year Treasury yields from the beginning of the year. Yields on 10-year T-notes began 2014 at around 3 percent, only to drop to 2.61 by Tuesday morning. Kostin forecasts the 10-year to finish the year with a 3.25 percent yield.

Kostin added that money flow and positioning have trumped stock market fundamentals so far this year.

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—By CNBC's Jeff Morganteen.

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