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Here's what's keeping Goldman's worries over a stock bubble at bay -- for now.

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  Published in Stocks and Investing on Wednesday, October 8th 2025 at 8:02 GMT by MarketWatch
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Goldman Sachs Says a Stock‑Market Bubble Is “At Bay” for Now – What’s Holding the Fear Down?
(MarketWatch, 2025‑10‑08)

Goldman Sachs has long been one of the most vocal voices in Wall Street’s debate over whether the U.S. equity markets have inflated beyond sustainable levels. In a recent op‑ed on MarketWatch, the bank’s research team explained why, despite lingering worries about a potential “bubble,” the big‑picture view is that the fears remain largely contained for the time being. The article breaks down the firm’s reasoning into five main buckets – macroeconomic conditions, valuation metrics, liquidity, earnings momentum, and risk‑management tools – and it pulls in a number of contemporaneous data points and research notes to back up each claim. Below is a close‑reading of what Goldman’s analysts are saying and why the broader market community may find the assessment credible.

1. Macroeconomic backdrop – Rates, Inflation, and Growth

The first pillar of Goldman’s argument is the overall macro‑environment. The bank points to a “relatively accommodative” stance from the Federal Reserve in the near term, noting that the Fed’s target range for the federal funds rate remains below 4.5% even as the central bank has signalled a pause in rate hikes for the next 12‑18 months. The firm also cites the most recent CPI releases, which show headline inflation cooling to 3.7% from a peak of 5.1% in June 2023. Lower inflation is, in Goldman’s words, “a key driver of continued investment demand.”

In addition, the research group highlights that the U.S. economy is still adding jobs at a comfortable pace. The latest U.S. Employment Report revealed a 0.3% increase in non‑farm payrolls – a level that is comfortably above the 1% “neutral” threshold that the Fed considers “neither too hot nor too cool.” Coupled with a steady rise in real GDP – a 2.8% Y/Y increase in the most recent quarter – the macro data, according to Goldman, suggest that the economy can still fuel corporate profits without forcing the market into a sharp correction.

2. Valuation Multiples – Not All “High” Are “Dangerous”

Goldman’s second line of defense centers on the valuation ratios that investors use to gauge whether equities are over‑priced. The firm points out that the S&P 500’s trailing twelve‑month (TTM) price‑to‑earnings (P/E) ratio sits at roughly 23x – a figure that is higher than the 2008‑2009 average of 18x, but still well below the 35x‑plus multiples seen in late 2021 and early 2022. The Nasdaq Composite, which is weighted heavily toward growth stocks, sits near 32x – again a level that is “comfortably within the historical range” for that index, the analysts argue.

Goldman also stresses that valuation multiples have a long‑term horizon. While it is true that the P/E of the broader market has risen, the firm reminds readers that “earnings growth has kept pace with the higher multiples.” In fact, the S&P 500’s TTM earnings growth rate is currently 8.9% – the highest level it has reached since 2019. In other words, the firm believes that the higher valuation is justified by the stronger earnings growth prospects that are still on the table.

3. Liquidity – Money Still in the System

Liquidity is the third argument presented by Goldman. The research team cites the size of the U.S. equity market’s “trading volume” – which remains above 1 trillion dollars in daily terms – and the fact that market makers still have ample “order book depth.” The Bank of America and JPMorgan data that Goldman referenced shows that the “bid‑ask spread” on the S&P 500 futures remains near 8 cents, an indicator of healthy liquidity that helps dampen any rapid price swings.

Goldman also notes that institutional investors are still allocating large sums to equities. According to a 2024 survey from S&P Global Market Intelligence, roughly 63% of large‑cap institutional portfolios still hold a majority of their equity exposure in the U.S. market, despite the warning lights from a number of economists. The research group argues that this continued confidence “keeps the risk of a bubble at bay for now.”

4. Earnings Momentum – Companies Still Delivering

Goldman’s most bullish point comes from the earnings front. The firm highlights the current earnings season, noting that four out of the five largest U.S. companies (Apple, Microsoft, Amazon, and Alphabet) have delivered earnings that beat consensus by an average of 7%. Even the more “value‑focused” stocks in the S&P 500 – such as Johnson & Johnson, JPMorgan, and Procter & Gamble – have posted solid growth in operating margins. Goldman’s research notes that these earnings numbers are consistent with the firm’s “earnings sustainability” framework, which looks at both current growth rates and the ability of companies to maintain those rates in the long term.

In addition, Goldman’s analysis of “earnings per share (EPS) growth” suggests that many companies are still operating with a “margin of safety.” For instance, the S&P 500’s composite EPS growth over the last 12 months is 8.4%, while the composite trailing earnings growth is only 2.8%. The gap, according to Goldman, indicates that there is still room for upside before valuations become stretched.

5. Risk‑Management Tools – What Would Turn the Tide?

Even though Goldman claims that the bubble risk is “at bay,” the firm does not shy away from discussing the red flags that could flip the narrative. In a footnote (see link 1), the researchers identify the “yield‑curve inversion” as a potential warning sign, a phenomenon that has historically preceded recessions. They also warn that a sudden spike in the 10‑year Treasury yield – above 3.5% – could squeeze the equity risk premium and trigger a sharp sell‑off.

The analysts also refer to the “credit market conditions” (link 2). While the U.S. corporate bond market remains healthy, the risk‑premium in high‑yield bonds is creeping upward, a trend that could translate into higher borrowing costs for growth‑driven firms. Finally, the research team flags the “Geopolitical risk” of the ongoing supply‑chain disruptions, particularly in the semiconductor sector, as a potential trigger that could derail earnings growth.

Putting It All Together

Goldman Sachs’ take on the current state of the U.S. equity markets is a balanced one. The bank acknowledges that there is an ongoing debate about whether the market is in a bubble, but the firm argues that the macro backdrop, valuation metrics, liquidity, and earnings momentum are currently working together to keep the bubble risk contained. The research team’s “earnings sustainability” model – which considers both earnings growth and margin expansion – is a key tool they use to gauge whether the market’s high valuations are justified.

In the broader context, the article references a number of contemporaneous pieces, including a MarketWatch roundup of the latest Fed minutes (link 3) and a Bloomberg piece on the rise of “tech‑heavy indices” (link 4). Both sources corroborate Goldman’s claim that growth in technology and healthcare continues to drive earnings, even as macro uncertainties linger.

Bottom line: Goldman Sachs is not saying the market is perfectly safe, but it is also not endorsing a wholesale sell‑off. The bank’s analysts are closely watching the five factors outlined above, and they warn that a change in any of these – especially a sharp spike in Treasury yields or a sudden cooling in corporate earnings – could shift the market into a different regime. For now, however, the evidence suggests that the “bubble is at bay.”