Why The Markets Aren't Overpriced Yet? Goldman Sachs Chief U.S. Equity Strategist Explains

The problem with bull markets is one is never sure whether stocks are adequately priced or are overvalued. Goldman Sachs Group Inc GS Chief U.S. equity strategist David Kostin was on CNBC Tuesday to explain why he considers the markets to be fairly valued right now and whether a big move in bond markets will affect Fed's decision to raise rates.

Fundamentals Are In Good Shape

"We can look at the fundamentals and what are the fundamentals suggesting," Kostin said. "U.S. corporations are operating with the best margins they have in history at 9 percent net margins. So, corporations, let's focus on [actual] corporations, you are buying, investor is buying a share of a operating business and the operating businesses simply is more profitable today than it has been in a long period of time."

"Now part of that, what are some of the reasons why companies have record profitability? Kostin asked. "Well, lower tax rates, lower interest rates, six sigma manufacturing, just in time inventory, outsourcing all those have contributed to a rise in technology, the change in the composition of the index. All those are positive elements that overtime have helped companies generate more revenue and more margins and that's what investors are paying for."

Many Concerns But Fundamentals Are Strong

Kostin was asked if there's a concern that a big move in the bond markets will result in the Fed holding back on raising the interest rates. He replied, "Well certainly there's many concerns, there's questions about Greece, what's happening in Europe, there's questions on growth trajectory in China. There is a lot of issues that are out there. Investors are always confronting different issues, but from a fundamental perspective no U.S. corporations are operating with very strong balance sheets and they are operating with very high margins and pretty lean […]"