Wall Street Warning: Imminent Correction Could Drop Global Markets by Up to 20%

In a notable warning from leading global financial institutions, Goldman Sachs and Morgan Stanley have advised investors to prepare for a potential stock market correction over the next two years, following the strong global rally seen this year.

Correction Forecast and Investment Strategy

• Goldman Sachs Forecast: David Solomon, CEO of Goldman Sachs, stated at a global financial investment summit in Hong Kong: "It's probable that we will see a 10 to 20% drawdown in equity markets over the next 12 to 24 months. Things go up, and then they reset, and investors re-evaluate, which is normal."

• Healthy Drawdowns: Solomon stressed that such drawdowns are a natural part of long-term bull markets. The bank's advice remains to stay invested and rebalance portfolios rather than trying to time the market. He noted that 10-15% corrections happen frequently, even during positive market cycles.

• Morgan Stanley View: Ted Pick, CEO of Morgan Stanley, concurred, emphasizing that periodic drawdowns are a healthy indicator, not a sign of crisis. Pick stated: "We should embrace the possibility of 10 to 15% corrections, as long as they are not triggered by major economic factors or sudden collapses."

Asian Markets: The Bright Spot

• Asian Optimism: Despite the general caution, both banks indicated that Asian markets represent a promising bright spot for the coming years.

• Opportunities in Asia: Morgan Stanley expressed optimism regarding the markets of Hong Kong, China, Japan, and India.

  • Japan and India: They highlighted governance reforms in Japan and infrastructure development plans in India as long-term investment opportunities.

  • China: Goldman Sachs predicted that China will remain one of the world's largest and most important economies. Pick specifically pointed to China's AI, electric vehicle, and biotechnology sectors as key growth drivers.

• Context of Warnings: The bankers' comments follow similar warnings from the IMF, as well as from Federal Reserve Chairman Jerome Powell and Bank of England Governor Andrew Bailey, regarding inflated global equity valuations.