The sizeable wobble in stock markets sparked by the emergence of DeepSeek's new artificial intelligence model is "a correction and not the start of a sustained bear market", according to Goldman Sachs.
As the first single-day fall of more than 3.5% of the 'Magnificent 7' tech giants since last autumn, the investment bank's equity strategists said.
"Most bear markets are triggered by expectations of falling profits driven by fears of recession," they wrote, but Goldman's economists are confident about world growth, putting the probability of a US recession in the next 12 months at 15%.
Goldman also expects interest rates to be cut, albeit modestly this year.
On the fallout from DeepSeek, the strategists said "a cheaper entrant into the AI space might increase confidence in this trend".
US stocks, in particular the Mag 7, "came into the year priced for perfection, leaving them vulnerable to disappointments", the Goldman team said, with "unusually strong" returns over the past couple of years.
With valuations, including P/E multiples, having increased meaningfully since late 2023, especially for the largest US technology companies, equities are "expensive relative to history even if we exclude large cap technology", while others around the world are "much cheaper" than the US, with some like China's also cheap versus their own history.
But Goldman says there is a basis for the strength of US stocks, and tech in particular.
"These factors have emerged as a function of strong fundamentals, not as the result of speculation or irrational exuberance.
"The growing dominance of the US equity market has simply mirrored its relative profit growth since the financial crisis.
"And the growing influence of technology on market returns reflects the significant outpacing of technology profits relative to other industries over the same period."