Wall Street CEOs Predict Market Pullback Amid High Valuations
Bloomberg – Prominent Wall Street executives are forecasting a substantial correction in equity markets, anticipating a decline exceeding 10% within the next 12 to 24 months, and viewing such a downturn as a potentially beneficial development. The prevailing sentiment centers around the challenging valuations currently present within the market. Mike Gitlin, President and Chief Executive Officer of investment manager Capital Group, articulated this view during a financial summit organized by the Hong Kong Monetary Authority on Tuesday. He stated that while corporate earnings remain robust, the primary concern lies with the elevated levels of valuations across the market.
Gitlin’s perspective aligns with those of other influential figures. Ted Pick, CEO of Morgan Stanley, and David Solomon, Chairman and CEO of Goldman Sachs Group Inc., have similarly expressed the likelihood of a significant sell-off in the coming period. Both acknowledge that pullbacks are an intrinsic component of normal market cycles. Pick highlighted the considerable distance markets have traveled, yet cautioned against complacency, noting that “policy error risk” remains a significant factor within the United States, alongside persistent geopolitical uncertainties. He emphasized a shift in focus towards company earnings—anticipated to increase in dispersion during 2026, with stronger firms expected to outperform while weaker companies lag. Pick further detailed the current activity in the new issue market, noting investor appetite for risk.
He advocated for welcoming the possibility of drawdowns ranging from 10% to 15%, specifically those not triggered by a catastrophic “macro-cliff” effect. Such a decline, he argued, would be considered a healthy development. Goldman Sachs’ David Solomon echoed this view, stating, “of course, it is likely there’ll be a 10% to 20% drawdown in equity markets sometime in the next 12 to 24 months.” Solomon’s advice to his clients remains consistent: maintain investments, conduct thorough portfolio reviews, and avoid attempting to precisely time market movements. He maintains that equity drawdowns of this magnitude are frequently observed during positive market cycles, leading to periods of reassessment rather than fundamentally altering long-term capital flows or allocations.
The current market conditions are characterized by an S&P 500 index trading at 23 times forward earnings estimates – significantly above its five-year average of 20 times. Similarly, the Nasdaq 100 Index is assessed at a multiple of 28 times, compared to nearly 19 times in 2022. This heightened valuation has fueled concern, particularly given the slowing US economy and the ongoing government shutdown. This has led to a notable reaction in futures markets, with the tech-heavy gauge experiencing an intraday drop of as much as 1.8%, and Palantir Technologies Inc. falling more than 7% in pre-market trading due to worries surrounding the company’s elevated valuation following a period of substantial gains.
The concern about rich valuations has intensified as global equities repeatedly reached new highs throughout the year, despite macroeconomic headwinds. Ken Griffin, Chief Executive Officer of Citadel, a prominent hedge fund, commented that “markets are most irrational at the heights of a bull market and the depths of a bear market,” suggesting a natural correction is likely. While Solomon acknowledges that “technology multiples are full,” he stresses that this doesn’t reflect the entire market landscape. He advises clients to carefully assess their portfolio allocations and to resist the urge to react impulsively to market fluctuations.
These views encapsulate a broader sentiment within the financial industry surrounding equity market valuations and the potential for corrective action. The anticipation of a substantial downturn warrants careful consideration for investors and highlights the inherent volatility within the markets. These predictions are continually monitored as the global economic landscape undergoes shifts.
—With assistance from Winnie Hsu.
(Updates today’s trading in eighth paragraph.)
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