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Goldman Sachs’ market strategist Peter Oppenheimer and team have a note out on DeepSeek, the upshot of which is this:

In many ways, it’s Oppenheimer playing the classics. The soft-landing scenario of lower inflation and falling interest rates, in combination with a top-heavy US tech sector that’s priced for perfection, make markets vulnerable to disappointments.

But bear markets usually coincide with falling profit expectations, and a recession this year is a long-odds bet, he says.
Also, everything looks fine in the rear-view mirror:
To be clear, 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

The rear-view-mirror is only so useful. As we’ve written numerous times elsewhere, the cause of Monday’s DeepSeek market wobble were fears that good-enough LLMs won’t cost billions to build and run, and that supplying them won’t be a winner-take-all competition.
AI commoditisation will be tricky for the hyperscalers, who’ve been digging money moats instead of inventing killer apps. Chinese open-sourcing makes American exceptionalism look a bit more fragile too. But the macro effects are neutral at worst. Cheap, efficient AI just means a lot more AI, so can’t be assumed to reduce overall spending on AI. We’re all experts now on the Jevons paradox:

Goldman was already on the cautious side about how much AI (or anything else) can improve near-term corporate profitability. Its house view for a while has been that earnings growth will slow this year by more than the consensus expects, and that the gap between earnings growth for the Magnificent Seven and the rest will gently narrow.
DeepSeek’s breakthrough is “a wake up call” that adds to market concentration risks, Oppenheimer and team say: a reminder that benefits from any revolutionary technology don’t automatically accrue to big spenders at the start of the adoption cycle, and that competition humbles even the biggest companies.
When investors are all-in for 2025 on the US in general and technology in particular, the risk of disappointment is high. “Equity markets are not typically driven by absolute outcomes, but rather by outcomes relative to expectations,” Goldman tells its clients, who you’d expect to know that already.
What might be less obvious is how stronger growth expectations have been priced in elsewhere. The year-to-date’s best-performing equity markets this year are all European, which appears to be as much to do with their lower weightings in tech as the weaker dollar . . .

… and the big picture is a lot more complicated than a growth-versus-value trade. Take, for instance, the Magnificent Seven versus the Turgid 27:

So the tech sector’s drift from record highs just means its growth-adjusted valuation has converged with non-tech:

Hang on though. If consensus forecasts are too high and big-tech concentration risks have risen, doesn’t that mean stock markets are looking overpriced?
No, says Oppenheimer. But you might want to take this opportunity to diversify holdings. Rather than selling equities, why not buy some bonds? Maybe add an equal-weighted US index tracker? Add a bit more geographical variety? Take another look at the non-tech global growth compounders?
Goldman — whose salesfolk are available to arrange all those trades — has put the full report in front of its paywall.
https://www.ft.com/content/8e49dedf-1e14-4ad7-a066-73c963a31a4f