Buildings along Wall Street in New York, US. <\/p>\n
(Bloomberg) — Wall Street chief executives said investors should brace for an equity market drop of more than 10% in the next 12 to 24 months, and that such a correction may be a positive development.<\/p>\n
Corporate earnings are strong but \u201cwhat\u2019s challenging are valuations,\u201d said Mike Gitlin, who helps oversee about $3 trillion as president and chief executive officer of investment manager Capital Group, during a financial summit organized by the Hong Kong Monetary Authority on Tuesday.<\/p>\n
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On whether stocks are cheap, fair or fully valued, Gitlin said most people \u201cwould say we\u2019re somewhere between fair and full, but I don\u2019t think a lot of people would say we\u2019re between cheap and fair,\u201d he said. The same goes for credit spreads, Gitlin added.<\/p>\n
His views were echoed by Morgan Stanley CEO Ted Pick and Goldman Sachs Group Inc.\u2019s David Solomon, who also see the possibility of a significant selloff in the coming period and said pullbacks are a normal feature of market cycles.<\/p>\n
<\/p>\n
Pick said markets have come a long way, but there\u2019s still \u201cpolicy error risk\u201d in the US and geopolitical uncertainty.<\/p>\n
\u201cYes markets seem expensive…but the reality is that systematic risk has probably narrowed,\u201d he said. There will be more focus on company earnings in 2026 and there will be greater dispersion, where stronger firms will outperform while weaker ones will lag, he said. In addition, the new issue market is active around the world \u201cand investors want to take risks.\u201d<\/p>\n
\u201cWe should also welcome the possibility that there would be 10 to 15% drawdowns that are not driven by some sort of macro-cliff effect,\u201d Pick said, calling that \u201ca healthy development.\u201d<\/p>\n
The S&P 500 index is trading at 23 times forward earnings estimates, above its five-year average of 20 times. Similarly, the Nasdaq 100 Index fetches a multiple of 28 times, compared with nearly 19 times in 2022. Futures on the tech-heavy gauge dropped as much as 1.8% on Tuesday, with AI bellwether Palantir Technologies Inc. declining more than 7% in pre-market trading on worries about the company\u2019s lofty valuation after a record run-up.<\/p>\n
Concerns about rich valuations have intensified after global equities repeatedly hit new highs this year despite a slowing US economy and a government shutdown.<\/p>\n
Markets are most irrational at the heights of a bull market and the depths of a bear market, said Citadel Chief Executive Officer Ken Griffin, who added that now \u201cwe are very deep into a bull market.\u201d<\/p>\n
Solomon said \u201ctechnology multiples are full,\u201d but that\u2019s not the case for the whole market. He said Goldman\u2019s advice to clients has been to stay invested, to look at their portfolio allocations, and avoid trying to time the market.<\/p>\n
He added that equity drawdowns of 10% to 15% also often occur through positive cycles without altering the general direction of capital flows or long-term allocations.<\/p>\n
\u201cIt just means things run and then they pull back so people can reassess,\u201d Solomon said.<\/p>\n
–With assistance from Winnie Hsu.<\/p>\n
(Updates today\u2019s trading in eighth paragraph.)<\/p>\n
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\u00a92025 Bloomberg L.P.<\/p>\n","protected":false},"excerpt":{"rendered":"Buildings along Wall Street in New York, US. (Bloomberg) — Wall Street chief executives said investors should brace…\n","protected":false},"author":3,"featured_media":354859,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[3638,173294,7624,41178,49062,51,158085,173296,50,173295,52,3642],"class_list":{"0":"post-354858","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-news","8":"tag-bloomberg","9":"tag-capital-group","10":"tag-chief-executives","11":"tag-corporate-earnings","12":"tag-david-solomon","13":"tag-headlines","14":"tag-hong-kong-monetary-authority","15":"tag-market-cycles","16":"tag-news","17":"tag-systematic-risk","18":"tag-top-stories","19":"tag-wall-street"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@us\/115491176786623974","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/354858","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/comments?post=354858"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/posts\/354858\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media\/354859"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/media?parent=354858"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/categories?post=354858"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/us\/wp-json\/wp\/v2\/tags?post=354858"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}