Stocks Near Record Highs. Goldman Just Turned More Bullish.

Wall Street is heading into earnings season with plenty to worry about: Treasury yields are elevated, oil prices remain high and stocks are already trading close to record levels.

Goldman Sachs is getting more bullish anyway.

The bank has upgraded its three-month view on global equities from neutral to overweight, arguing that the recent pullback has made valuations more attractive while corporate earnings remain strong. Goldman remains overweight on both U.S. and Asian equities, while staying underweight Europe.

Earnings Could Be the Next Catalyst

The timing is important.

S&P 500 companies are expected to deliver roughly 25% year-on-year profit growth in the third quarter — already a high bar. Goldman believes earnings could come in even stronger.

That could give U.S. stocks another reason to push higher, particularly after rising bond yields and oil prices cooled some of the market's earlier momentum.

But the risks haven't disappeared. Goldman still sees higher interest rates and energy prices as the biggest near-term threats to equities, while uncertainty around the U.S. midterm elections could bring more volatility.

For US500 and NAS100, earnings may now be the key test. Strong results could help justify elevated valuations and revive the rally. A disappointing season, however, could leave high-priced stocks more exposed to the pressure from elevated yields.

Goldman is betting earnings can win the battle. Now companies have to deliver.