We still love stocks, but not as much: Goldman

Adam Jeffery | CNBC

In March 2012, Goldman Sachs said the prospects for making money in equities relative to bonds "were as good as they had been in a generation."

Goldman is still bullish on stocks today, but with more muted expectations.

"We believe we are in transition from the 'hope' phase—the initial strong phase of an equity market recovery based on expectations—into a 'growth' phase—the second stage of the cycle driven by earning and dividend growth," the bank wrote in a portfolio strategy research paper for clients. "This phase tends to be longer but with more moderate returns and low volatility."

Goldman's call 18 months ago was a good one: the Dow Jones industrial average gained 16.78 percent from March 21 through the end of trading Wednesday.

(Read more: Don't panic! Equity markets to go higher: Goldman Sachs)

The new forecast, written by portfolio strategists Peter Oppenheimer and Matthieu Walterspiler, is still rosy. The two predict average annual returns of 17.6 percent for equities through 2015, compared with 0.3 percent for government bonds and 2.1 percent for corporate bonds.

"A more stable trending market should result in lower stock correlation within sectors and more alpha opportunities," the "The Long Good Buy II" report said.

"In terms of themes, better growth prospects and a lower risk premium should prompt investors to pay more for growth, particularly more cyclical growth relative to more predictable (and expensive) top-line growth. The ongoing prospects for very low interest rates should continue to favor high dividend yielding companies that can generate dividend growth and strong total returns."

(Read more: Stocks offer best opportunity in a lifetime: Goldman Sachs)

Goldman also said decreased correlations between equities should help hedge funds and other active money managers.

"As the [equity risk premium] falls, common macro factors will tend to become less of a market driver. Stock correlations would tend to fall and alpha opportunities should rise," Goldman said. "This should play into the hands of active management strategies relative to passive ones."

Bank of America Merrill Lynch also likes equities even if returns are set to cool.

"Significant monetary stimulus, the end of fiscal austerity, a booming housing market, a cheap dollar, record corporate cash balances ..if the US economy does not significantly accelerate in coming quarters, it never will," Michael Hartnett, Bank of America Merrill Lynch's chief investment strategist, wrote in a report Thursday.

"We assume it will, and favor assets (e.g. equities), sectors (e.g. banks) and markets (e.g. Europe) that have lagged in the 'High Liquidity-Low Growth' world of recent years," he wrote.

"Asset price will not do as well in the next 5 years, no matter what the 'nouveau bulls' say. Central banks will be less generous, corporations less selfish. And when excess liquidity is removed it will get 'CRASHy'. The dollar and (temporarily) volatility will be the last assets to surge as deleveraging ends and an era of normalization begins."

—By CNBC's Lawrence Delevingne. Follow him on Twitter @ldelevingne.