Goldman Sachs and Morgan Stanley have issued a warning about a potential market correction. The CEOs of both firms have advised investors to prepare for a downturn within the next two years.
Drawdowns Happen Even In ‘Positive Market Cycles’
On Tuesday, at the Global Financial Leaders’ Investment Summit in Hong Kong, Goldman Sachs CEO David Solomon and Morgan Stanley CEO Ted Pick alerted investors to a possible 10-20% drawdown in equity markets over the upcoming 12 to 24 months, reported CNBC.
Solomon acknowledged that such reversals are a normal part of long-term bull markets and advised clients to remain invested and review their portfolio allocation rather than attempting to time the markets. “A 10 to 15% drawdown happens often, even through positive market cycles,” he said.
Pick echoed Solomon’s views, characterizing periodic market pullbacks as healthy corrections rather than signs of distress. He also stressed the need to accept drawdowns that occur independently of major macroeconomic shocks.
“…10 to 15% drawdowns that are not driven by some sort of macro cliff effect,” stated Pick.
Goldman Sachs and Morgan Stanley highlighted Asia, particularly China, as a key growth area in the coming years, citing the recent U.S.-China trade pact and continued investor interest in China’s major economy.
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BOE, IMF Issue Correction Warnings
The warnings from Goldman Sachs and Morgan Stanley come in the wake of similar concerns raised by the Bank of England (BoE) about the risk of a sharp market correction. The BoE cited geopolitical tensions, sovereign debt pressures, and stretched asset valuations, particularly for technology companies focused on artificial intelligence, as factors contributing to the increased risk.
Additionally, the International Monetary Fund‘s (IMF) First Deputy Manager, Gita Gopinath, has expressed concerns about the growing global exposure to U.S. equities. Gopinath warned that a stock market correction at this stage could have severe and global consequences, relative to what followed soon after the dot-com crash in 2000.
Tom Lee Differs With Powell
In September, Federal Reserve Chairman Jerome Powell, in a conference, stated “equity prices are fairly highly valued.” Fundstrat‘s Head of Research, Tom Lee, was quick to snap back at Powell, urging investors not to interpret the comments as a warning sign. “When was the last time the Fed ever said stocks are ‘attractively priced’? (Hint: never)”. wrote Lee on X.
On Monday, Tom Lee told CNBC that the S&P 500 could touch 7,500 by year-end. The index closed 11.77 points higher at 6,851.97, the same day.
Price Action
On a year-to-date basis, the SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust ETF (NASDAQ:QQQ), which track the S&P 500 index and Nasdaq 100 index, respectively, climbed 16.88% and 23.88%, respectively, according to Benzinga Pro data.
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.