Goldman Sachs advised clients to invest in high-growth stocks like Netflix Inc. (NFLX) and Nvidia Corp. (NVDA).
That is because Goldman expects rising interest rates to depress earnings growth. This in turn will place a premium on company valuations.
“The majority of the recent market rally has been driven by higher earnings rather than valuation expansion. Going forward, we expect growth to continue to drive S&P 500 stock returns. We expect that the prospect of 4 Fed rate hikes in 2018 will result in a forward P/E contraction.”
The firm highlighted companies that allocate 90% of cash flow from operations to fund growth initiatives.