Goldman Sachs and Morgan Stanley Issue Warning on Potential Market Correction
Goldman Sachs and Morgan Stanley have issued a cautionary note to investors about a potential market correction in the near future. The CEOs of both firms have advised preparing 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 highlighted the possibility of a 10-20% drawdown in equity markets over the next 12 to 24 months, according to CNBC.
Solomon emphasized that such reversals are a normal part of long-term bull markets. He recommended that clients remain invested and review their portfolio allocation rather than attempt to time the markets.
> “A 10 to 15% drawdown happens often, even through positive market cycles,” Solomon said.
Echoing Solomon, Pick characterized periodic market pullbacks as healthy corrections instead of signs of market distress. He further stressed the importance of accepting drawdowns that occur independently of major macroeconomic shocks.
> “10 to 15% drawdowns that are not driven by some sort of macro cliff effect,” Pick stated.
### Focus on Asia as a Key Growth Area
Both Goldman Sachs and Morgan Stanley highlighted Asia—particularly China—as a crucial growth region in the coming years. They cited recent developments such as the U.S.-China trade pact and sustained investor interest in China’s robust economy.
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– BOE, IMF Issue Correction Warnings
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### Broader Warnings from the BOE and IMF
The warnings from Goldman Sachs and Morgan Stanley come amid similar concerns from major global financial institutions. The Bank of England (BoE) has raised alarms about the risk of a sharp market correction due to geopolitical tensions, sovereign debt pressures, and stretched valuations—particularly in technology companies focused on artificial intelligence.
Likewise, the International Monetary Fund (IMF) First Deputy Managing Director, Gita Gopinath, expressed concerns over the world’s growing exposure to U.S. equities. Gopinath warned that a stock market correction at this stage could have severe and far-reaching consequences, drawing parallels to the aftermath of the dot-com crash in 2000.
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### Diverging Views: Tom Lee vs. Jerome Powell
Federal Reserve Chairman Jerome Powell, during a recent conference, stated that “equity prices are fairly highly valued.” However, Fundstrat’s Head of Research, Tom Lee, was quick to push back, cautioning investors not to interpret Powell’s comments as a warning sign.
> “When was the last time the Fed ever said stocks are ‘attractively priced’? (Hint: never),” Lee wrote on X.
On Monday, Lee told CNBC he expects the S&P 500 to reach 7,500 by year-end. On the same day, the index closed 11.77 points higher at 6,851.97.
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### Market Performance and Price Action
On a year-to-date basis, key market ETFs show solid gains. The SPDR S&P 500 ETF Trust (NYSE: SPY), which tracks the S&P 500 index, has climbed 16.88%, while the Invesco QQQ Trust ETF (NASDAQ: QQQ), tracking the Nasdaq 100 index, is up 23.88%, according to Benzinga Pro data.
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*Image credit: Shutterstock*
https://www.benzinga.com/markets/equities/25/11/48618218/goldman-sachs-morgan-stanley-ceos-predict-10-20-market-correction-over-next-2-years-not-driven-b
