- The painful sell-off in stocks on Monday doesn’t signal the start of a bear market, Goldman said.
- Strong macroeconomic conditions will hold up the market.
- Monday’s retreat was a rethinking of high valuations among tech stocks, not weak fundamentals.
The market’s dramatic free fall on Monday may have spooked investors this week, but the event was not a prelude to a deeper wipeout, Goldman Sachs said.
The market sold off to start the week as investors reacted to the jarring debut of DeepSeek, an AI app from a Chinese startup that challenged some of the core tenets of the market’s bull thesis.
But to Goldman analysts, the event doesn’t portend more pain to come.
“In our view this is a correction and not the start of a sustained bear market,” analysts led by Peter Oppenheimer wrote on Wednesday.
With $1 trillion in market capped wiped out in a day, fears that the market was reaching a bearish inflection point likely seemed warranted to investors. However, Goldman argued that bear markets strike when profits fall on recession fears.
While DeepSeek created ripples in the AI narrative, it did nothing to disrupt strong macroeconomic conditions. The analysts said they see a 15% chance that recession hits in the next 12 months, and are also betting on moderate interest rate cuts this year as inflation continues to ebb.
Goldman Sachs Global Investment Research
Instead of signaling the start of a possible bear market, the sell-off reflected that leading US tech stocks were “priced to perfection,” meaning that their valuations had climbed to levels that made them sensitive to disappointments.
The tech sector’s heavy concentration in the S&P 500 — in which the top seven mega-cap firms account for around a third of the benchmark’s value — only added to the problem.
Yet Goldman says these factors are the side-effects of strong fundamentals and not the result of massive speculation.
“The growing influence of technology on market returns reflects the significant outpacing of technology profits relative to other industries,” the note said. In other words, there’s no bubble.
Since Monday, investors have returned to the idea that US tech is attractive, and could even benefit from DeepSeek’s disruptive AI model. Benchmark indexes briefly surged on Tuesday, though trading has since been mixed.
Other commentators disagree with Goldman’s take.
“The Black Swan” author Nassim Taleb warned that Monday’s decline could be the start of deeper pullbacks to come.
“This is the beginning,” Taleb told Bloomberg on Tuesday. “Beginning of an adjustment of people to reality, because now they realize, now, it’s no longer flawless.”
Goldman advised that investors try and diversify without giving up on tech. That includes adding exposure to bonds, focusing on the equal-weight S&P 500, and favoring global growth compounders beyond the tech sector.
