Bear Market Unlikely as Stocks Rebound, Goldman Says
Monday's market sell-off was a correction, not the onset of a bear market, according to Goldman Sachs. Strong macroeconomic conditions continue to support the market, and Monday's decline was driven by a reassessment of high valuations in tech stocks.
"This is a correction and not the start of a sustained bear market," Goldman analysts stated.
While DeepSeek, an AI app, caused a stir in the AI narrative, it did not alter the robust macroeconomic environment. Goldman estimates a 15% chance of recession in the next 12 months and anticipates moderate interest rate cuts as inflation eases.
The sell-off reflects overvaluation in leading US tech stocks, which has since been corrected. The tech sector's dominance in the S&P 500 exacerbated the issue. However, Goldman attributes these factors to solid fundamentals, not speculation.
"The growing influence of technology on market returns reflects the significant outpacing of technology profits relative to other industries," Goldman noted.
Despite Monday's decline, investors have recognized the enduring appeal of US tech and its potential to benefit from DeepSeek's disruptive AI approach. Market performance has been mixed since Tuesday.
Goldman advises investors to diversify their portfolios without abandoning tech. This includes incorporating bonds, exploring the equal-weight S&P 500, and investing in global growth compounders outside the tech sector.