World equity markets fell sharply yesterday. Most were down 2% to 3%. This has more to do with the speed of stocks’ advance in recent months than anything else. Here are some factors that make me less concerned about a market downturn:

Durable expansion. Americans can expect solid first-half U.S. growth and continued economic strength abroad. Fourth quarter gross domestic product will be revised down today, but with positive implications for 2007. It looks as though housing will subtract from U.S. GDP in the first and second quarters, but not as much as in the second half of 2006. Consumption growth remains strong. With bond yields low around the world, it looks like the environment remains favorable for growth and equities.

China’s sell-off is valuation-related — simply, the prices are too high. Fundamentally, there is little new going on in China that would qualify as an inflection point. China has been trying to slow things down for years, using monetary and tax policies. Shanghai’s equities fell 9% on Tuesday, but after having gained 16% from February 5 through February 26 to an all-time high. Market cap had risen to $1.1 trillion, versus $1.04 trillion for Hong Kong. A note by my Hong Kong-based colleague Michael Kurtz at Bear Stearns, circulated in January, warned: “China (Underweight): Valuations Now Excessive, Stocks are Over-owned, and Liquidity Support May Moderate.”

There is no shift toward risk aversion in financial markets. Outside sub-prime, credit spreads remain at very, very tight levels. Emerging equity markets have fallen more than industrialized markets, but the declines are not out of line with their outsized gains in recent months. Neither market action points to a shift in global risk tolerance. I’m not expecting a swing toward risk aversion until the Fed takes the punch bowl away — raises rates. The huge overhang of liquidity built through low and negative real interest rates in recent years, particularly in America and Japan, should keep markets risk-seeking for several more quarters.

Little instability. The dollar has been weak lately, which can be attributed to the dovish tone of Fed policy statements and forecasts. Markets have now priced interest rate cuts into U.S. futures markets despite rate hikes abroad and continued U.S. inflation.

Alan Greenspan’s widely reported comments weren’t nearly as negative as the headlines portrayed. The February 26 Dow Jones newswire headline read: “Greenspan: Recession In U.S. ‘Possible’ In Late 2007.” The Bloomberg headline read: “Greenspan Says U.S. May Slip Into Recession, Dow Jones Reports.” Per Dow Jones, the former Federal Reserve chairman said, “While, yes, it is possible we can get a recession in the latter months of 2007, most forecasters are not making that judgment and indeed are projecting (growth) forward into 2008 … with some slowdown.” In his remarks, Mr. Greenspan called the global economy “benign and stable.” In a broad-ranging discussion, Mr. Greenspan said the U.S. and global economies are far more resilient now than before to economic and financial shocks. That seems correct — we can attribute some of that resilience to plentiful liquidity.

Regarding housing, Mr. Greenspan said: “We are now well into the contraction period and so far we have not had any major, significant spillover effects on the American economy from the contraction in housing.” U.S. housing starts are down “quite sharply,” which is “implicitly creating a reduction in the very high inventories of new unsold homes,” Mr. Greenspan said as quoted by the Dow Jones. Note that inventories relative to sales are at levels that were common in the 1970s, 1980s, and early 1990s.

One of the key factors unsettling global markets in recent days has been concern over sub-prime mortgages. While problems here may continue, there is no reason to expect broad spillover. While the 2004-2006 increase in interest rates is putting strain on floating rate mortgages, it is important to note positive factors for many borrowers: lower unemployment, and job and wage growth. Lower longer-term interest rates are holding fixed rate mortgage costs. Overall mortgage delinquencies, while rising, remain well below previous norms.

Overall, it is hard to see much similarity between current conditions and the stiff mid-May 2006 global sell-off. That sell-off was triggered by concern over rising inflation and possible Fed responses. Core consumer price index inflation had been high in February, March, and April 2006 (see my May 11, 2006 piece, “Seeing the Economic Top: Fed Concerns Merit Market Caution”). The Federal Reserve chairman, Ben Bernanke, was relatively new to his post then, adding a degree of uncertainty. While most asset prices are higher now, so are earnings and global economic gains. An important contrast between today and May 2006 is that core CPI inflation has been lower in recent months, and Mr. Bernanke today enjoys a high degree of respect and confidence.

Mr. Malpass is the chief economist of Bear Stearns.