Goldman's team argues that the price-to-earnings ratio for the S&P 500 has already peaked, which would leave earnings growth as the sole contributor to positive returns for the rest of this cycle.
And Kostin & co. don't expect U.S. equities or the economy to kick into higher gear any time soon. As such, the strategists forecast that the years of double-digit returns for the S&P 500 have passed, calling for gains of 5 percent or less forecast out through 2018:
"Our baseline forecast is that the US economy will grow at a modest pace, earnings will rise, and the S&P 500 index will climb slowly while the P/E multiple declines as interest rates rise," wrote the strategists. "'Flat is the new up' will be the 2016 investor refrain."
In light of its outlook for American equities, Goldman recommends writing out of the money calls (which allow investors to receive a premium but caps their upside) and buying stocks that have a high degree of exposure to the U.S. economy, return cash to shareholders, and have strong balance sheets.
The upside risks highlighted by the strategists include a heavier pace of corporate share buybacks and a tactical, short- term bounce driven by undue pessimism.