Apparently, everyone is going to adopt on an oxymoron when describing their outlook for equities in 2018.

As noted last week, there's something not quite right about the term “rational exuberance.” “Exuberance” implies at least a little bit of irrationality in most cases and there is most assuredly some irrationality inherent in being “exuberant” about an asset class that is stretched to historical extremes on all kinds of standard metrics.

But here's the thing: assuming the ubiquitous “Goldilocks” narrative of decent global growth but still subdued inflation continues to be a reasonably accurate description of economic reality and assuming subdued inflation gives central banks the cover they need to keep the pace of normalization sufficiently gradual, there's a plausible argument to be made that risk assets have further to run.

Their 2018 outlook hinges on three things:

Goldman concedes that valuations are stretched on both an absolute and a relative basis. To wit: