Wall Street CEOs Expect Over 10% Drop — But Call It Just Part of the Market Cycle
President and CEO of Capital Group, said that while corporate earnings remain solid, valuations have become stretched.
Quick overview
- Top executives from major banks predict a potential downturn in U.S. equities, forecasting a drop of over 10% in the next 12 to 24 months.
- They believe this correction is a normal part of the market cycle rather than a sign of systemic risk.
- Valuations are currently stretched, with the S&P 500 trading at 23 times forward earnings, above its five-year average.
- Bank CEOs emphasize that market corrections are healthy and necessary, encouraging investors to focus on long-term corporate earnings.
Top executives from major banks and investment firms are warning investors to brace for a potential downturn, projecting that U.S. equities could fall more than 10% over the next 12 to 24 months.
Still, they argue that such a correction would be a healthy and normal phase of the market cycle rather than a sign of systemic risk.
Mike Gitlin, President and CEO of Capital Group, said that while corporate earnings remain solid, valuations have become stretched. “The challenge right now is valuations,” he noted. “I’d say we’re somewhere between fair and expensive — but I don’t think many people would say we’re between cheap and fair.”
The S&P 500 is currently trading at 23 times forward earnings, above its five-year average of 20 times, while the Nasdaq 100 trades at 28 times, compared with around 19 times in 2022.
Bank CEOs Weigh In on Market Outlook
Ted Pick, CEO of Morgan Stanley, and David Solomon, CEO of Goldman Sachs, echoed Gitlin’s outlook, predicting a significant market selloff in the coming year. Both emphasized that corrections are a natural and necessary feature of long-term market cycles.
Pick warned about “policy error risk” despite strong market momentum and said investors should focus more on corporate earnings by 2026. “We should actually welcome the prospect of 10% to 15% declines that aren’t driven by a macroeconomic collapse,” he said, calling such moves “a healthy development.”
Meanwhile, tech futures fell as much as 1.4% on Tuesday, and shares of Palantir Technologies, a key AI stock, dropped over 4% in after-hours trading on valuation concerns following a record rally. Solomon noted that “tech valuations are full,” though he added that this doesn’t apply to the entire market.
Like Pick, Solomon sought to calm investors, arguing that such corrections are common during bull markets and don’t derail broader capital flows or long-term allocations. “It simply means things go up, then pull back, so people can reassess,” he said.
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