Goldman Sachs and Morgan Stanley warned in unison: U.S. stock valuations are too high and may face a retracement of at least 10%!

Executives from Wall Street's top investment banks warned in unison that despite strong corporate profits, the current valuation level of U.S. stocks is worrying and a retracement of more than 10% may occur in the next 12 to 24 months. This article originates from an article written by Wall Street Insights, compiled and written by Foresight News.
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(Background supplement: First time since 1996! The "fear index" sent a signal, will the calm period of U.S. stocks end? )

Contents of this article

Wall Street’s top investment bank executives warned in unison that despite strong corporate profits, current valuation levels are worrying and a retracement of more than 10% may occur in the next 12 to 24 months.

On November 4, according to media reports, Morgan Stanley CEO Ted Pick and Goldman Sachs CEO David Solomon both believed at a financial summit organized by the Hong Kong Monetary Authority that the current valuation level of U.S. stocks is worrying and that the market may see a sharp sell-off in the future.

Goldman Sachs believes stocks could see a 10% to 20% retracement over the next 12 to 24 months. Morgan Stanley said a 10% to 15% retracement that was not driven by some macro cliff effect would be welcome. The two executives stressed that pullbacks are a normal feature of market cycles and investors should view them as healthy developments.

At the same time, Capital Group President and CEO Mike Gitlin also expressed a similar view, believing that "corporate earnings are strong, but valuation levels are challenging." He noted that most investors believe market valuations range between reasonable and adequate, with few believing stocks are cheap. Citadel CEO Ken Griffin pointed out that the market is most irrational at the peak of a bull market and the bottom of a bear market, and "we are now in the depths of a bull market."

Despite concerns about the valuation of U.S. stocks, both investment banks Goldman Sachs and Morgan Stanley remain optimistic about the prospects of the Asian market.

High valuation levels raise concerns

Goldman Sachs’ Solomon noted that “tech stocks are fully valued,” but this does not apply to the entire market.

Morgan Stanley's Pick mentioned that the market has come a long way, but there are still "risks of policy errors" and geopolitical uncertainty in the United States.

Capital Group’s Gitlin was blunt about the core issues facing the current market. Asked whether the stock was cheap, reasonable or adequately valued, he said:

Most people think we are somewhere between reasonable and well-valued, but I think very few would say we are somewhere between cheap and reasonable.

Retracement seen as healthy adjustment

Wall Street executives agree that market pullbacks should be viewed as normal and healthy developments rather than signals of crisis.

Goldman Sachs’ Solomon emphasized that 10% to 15% retracements occur frequently even in positive market cycles and do not change the basic structural judgments of capital allocation.

He explained that the market will rise first and then pull back, giving investors a chance to reassess. This pattern is a normal feature of a long-term bull market.

Money’s Pick said investors should welcome the possibility of a cyclical pullback, calling it a healthy development rather than a sign of crisis.

We should also welcome the possibility of a 10% to 15% retracement that is not driven by some macro cliff effect.

These views of Wall Street bank CEOs were reportedly echoed by recent warnings from the International Monetary Fund, which warned of the possibility of a sharp correction. It is worth noting that Federal Reserve Chairman Powell and Bank of England Governor Bailey have also previously warned that stock valuations are too high.

The Asian market now has a positive outlook

Despite concerns about the valuation of U.S. stocks, two investment banks, Goldman Sachs and Morgan Stanley, remain optimistic about the outlook for the Asian market.

Goldman Sachs expects that global capital allocators will continue to be interested in China based on recent developments, including positive developments in the trade situation.

Solomon pointed out that China is one of the "largest and most important economies" in the world.

Morgan Stanley remains bullish on markets such as China, Japan and India, which it believes have unique growth stories. Pick said: "It's hard not to be excited about China, Japan and India - three very different narratives, but all part of the global Asia story." Pick particularly emphasized investment opportunities in China's artificial intelligence, electric vehicles and biotechnology sectors, and also mentioned Japan's corporate governance reforms and India's infrastructure construction, calling them multi-year investment themes.