Goldman Strategists Say Tech Selloff Was No Bear Market Signal

(Bloomberg) -- The tech-led selloff in US equities at the start of this week was just a blip, given the positive outlook for the economy, according to Goldman Sachs Group Inc. strategists.

Shock among investors at the rapid adoption of Chinese startup DeepSeek’s cheaper AI model wiped almost $1 trillion off the value of the Nasdaq 100 Monday. That slump isn’t a harbinger of a sustained decline in stocks, the Goldman team led by Peter Oppenheimer wrote in a note.

“Most bear markets are triggered by expectations of falling profits driven by fears of recession,” which has a low probability of occurring in the next 12 months, the strategists said.

DeepSeek’s astonishing success sparked concerns about US dominance in the artificial intelligence space as well as the lofty valuations of firms like Nvidia Corp. But the Goldman strategists said weakness in stocks will be limited as interest rates are falling and inflation is moderating, as long as there are no major bad economic surprises.

“This combination of macro conditions has historically been supportive of risk assets,” they said.

Oppenheimer has warned of elevated valuations and unusually high market concentration recently, recommending geographical diversification and broadening sector exposure. US stocks were “pretty fully valued,” he said in a Bloomberg TV interview on Jan. 20, a week before the market rout. But over the next year, the strategist sees scope for more gains.

“The dominance of US equity market, technology sector, and dominant companies, do not represent a bubble based on irrational exuberance but are rather a reflection of superior fundamentals,” the strategists said in the note on Wednesday. “Its superior earnings growth at the index level is set to fade, opening opportunities for more diversification.”

--With assistance from Michael Msika.