Wall Street CEOs Warn Of Market Pullback From Rich Valuations

Wall Street chief executives said investors should brace for a equity market drawdown of more than 10% in the next 12 to 24 months, and that such a correction can be a positive development.

Corporate earnings are strong but "what's challenging are valuations," said Mike Gitlin, president and chief executive officer of investment manager Capital Group, on Tuesday during a financial summit organized by the Hong Kong Monetary Authority.

On whether stocks are cheap, fair or fully valued, Gitlin said most people "would say we're somewhere between fair and full, but I don't think a lot of people would say we're between cheap and fair," he said. The same goes for credit spreads, Gitlin added.

His views were echoed by Morgan Stanley CEO Ted Pick and Goldman Sachs Group Inc.'s chief 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.

Pick said markets have come a long way, but there's still "policy error risk" in the US and geopolitical uncertainty.

"Yes markets seem expensive...but the reality is that systematic risk has probably narrowed," 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 "and investors want to take risks."

"We should also welcome the possibility that there would be 10 to 15% drawdowns that are not driven by some sort of macro-cliff effect," Pick said, adding that "that's a healthy development."

Solomon said "technology multiples are full," but that's not the case for the whole market. He said Goldman's advice to client s has been to stay invested, to look at their portfolio allocations, and avoid trying to time the market.

He added that equity market drawdowns of 10% to 15% also often occur through positive cycles without altering the general direction of capital flows or long-term allocations.

"It just means things run and then they pull back so people can reassess," said Solomon.

Source: Bloomberg Europe