CEOs of major Wall Street firms have warned that global equity markets could see a decline of more than 10% within the next one to two years. They described the potential correction as part of a normal market cycle rather than a sign of crisis.
Join IG, CMC, and Robinhood at London’s leading trading industry event!
A sharp equity market decline could influence retail traders’ behavior, with some likely to cut exposure or move to safer assets. Others may view the lower valuations as buying opportunities, potentially increasing short-term volatility and trading activity.
Equity Correction Could Be Healthy Development
According to a Bloomberg report, Capital Group CEO Mike Gitlin said at a financial summit organized by the Hong Kong Monetary Authority that valuations were becoming a concern despite solid corporate earnings. “Most people would say we’re somewhere between fair and full,” he noted, suggesting that few see markets as cheap. He added that credit spreads are also tight.
- Musk’s $1 Trillion Tesla Reward Meets Resistance from Norway’s Sovereign Fund
- Crypto.com Launches Entertainment Prediction Markets with CFTC Regulated US License
- Saxo UK Teams with BlondeMoney Ahead of Autumn Budget Uncertainty
Gitlin’s concerns were echoed by Morgan Stanley CEO Ted Pick and Goldman Sachs CEO David Solomon. Both agreed that markets may face a significant pullback after years of gains. Pick said markets have advanced considerably but still face “policy error risk” in the US and geopolitical uncertainty. He added that a 10% to 15% correction would be “a healthy development” rather than a sign of weakness.
10–15% Drawdowns Seen as Normal
The S&P 500 index currently trades at 23 times forward earnings, above its five-year average of 20 times. The Nasdaq 100 index is valued at 28 times earnings, compared with about 19 times in 2022. Futures on the Nasdaq fell nearly 1.8% on Tuesday, with Palantir Technologies dropping more than 7% in pre-market trading amid concerns over high valuations.
Citadel CEO Ken Griffin described the current market as being “very deep into a bull market,” warning that investor sentiment can become most irrational at extreme highs and lows.
Solomon said that while technology stocks appear expensive, other parts of the market remain fairly valued. He added that drawdowns of 10% to 15% often occur even in positive cycles, allowing investors to reassess portfolios. “It just means things run and then they pull back so people can reassess,” he said.
