Morgan Stanley CEO sees 10%-15% equity markets drawdown
Analysts and investors debate whether markets are in a bubble
Futures linked to Wall Street’s main indexes edge lower
Nov 4 (Reuters) – CEOs of Wall Street heavyweights Morgan Stanley (MS.N), opens new tab and Goldman Sachs (GS.N), opens new tab on Tuesday cautioned that equity markets could be heading toward a drawdown, underscoring growing concerns over sky-high valuations.
Fears of a market bubble come as the benchmark S&P 500 (.SPX), opens new tab continues its meteoric climb, repeatedly hitting record highs and evoking memories of the dot-com boom.
“We should welcome the possibility that there would be drawdowns, 10% to 15%, that are not driven by some sort of macro cliff effect,” Morgan Stanley CEO Ted Pick said at the Global Financial Leaders’ Investment Summit in Hong Kong.
Markets have so far largely brushed aside concerns about inflation, elevated interest rates, policy uncertainty from shifting trade dynamics and the ongoing federal government shutdown, now in its fifth week.
“When you have these cycles, things can run for a period of time. But there are things that will change sentiment and will create drawdowns, or change the perspective on the growth trajectory, and none of us are smart enough to see them until they actually occur,” Goldman CEO David Solomon said at the summit.
U.S. MARKET FUTURES FALL
Futures tracking Wall Street’s main indexes slipped early on Tuesday, while the VIX (.VIX), opens new tab, Wall Street’s “fear gauge,” hovered near a two-week high.
At 07:08 a.m., Dow E-minis fell 356 points, or 0.75%, S&P 500 E-minis shed 75 points, or 1.09%, and Nasdaq 100 E-minis lost 360.25 points, or 1.37%.
“Technology multiples are full,” Solomon said, but added that the same does not hold true for the broader market.
His remarks echo the mood among seasoned Wall Street executives, who have front-row seats to market trends. Positioning a pullback as healthy also underscores the degree of exuberance in markets.
Last month, banking giant JPMorgan Chase’s (JPM.N), opens new tab CEO Jamie Dimon had warned of a heightened risk of a significant correction in the U.S. stock market within the next six months to two years.
“I am far more worried about that than others,” Dimon said, according to the BBC, adding there were a “lot of things out there” creating an atmosphere of uncertainty, pointing to risk factors, including geopolitical tensions, fiscal spending and global remilitarization.
Earlier this week, the co-chief investment officers of hedge fund Bridgewater Associates had said that investors are overlooking mounting risks.
AI BOOM OR BUBBLE?
The surge in enthusiasm for generative AI has drawn comparisons to the dot-com bubble, as investors pour billions into technology firms amid soaring valuations and expectations of transformative growth.
In September, Citigroup said it expects AI-related infrastructure spending by tech giants to surpass $2.8 trillion through 2029, higher than the $2.3 trillion it estimated earlier.
The dot-com bubble of the late 1990s was fueled by speculative investment in internet-based companies, leading to a surge in tech stock valuations that eventually collapsed in 2000, wiping out trillions in market value.
Still, some analysts say the current AI boom differs from the dot-com era, as the leading companies driving it are supported by solid earnings and tangible business performance.
Last month, Nvidia (NVDA.O), opens new tab made history as the first company to reach $5 trillion in market value.
Reporting by Manya Saini and Niket Nishant in Bengaluru; Editing by Arun Koyyur
Manya reports on prominent publicly listed U.S. financial firms, including Wall Street’s biggest banks, card companies, asset managers, and fintechs. She also covers late-stage venture capital funding, initial public offerings on U.S. exchanges, and regulatory developments in the cryptocurrency industry. Her work appears in the finance, markets, business, and future of money sections of the Reuters website.
A passionate reader, she loves books across genres, from classics to contemporary fiction. She holds an undergraduate degree in Political Science from the University of Delhi and a master’s in journalism from the Symbiosis Institute of Media and Communication.
Niket Nishant reports on breaking news and the quarterly earnings of Wall Street’s largest banks, card companies, financial technology upstarts and asset managers. He also covers the biggest IPOs on U.S. exchanges, and late-stage venture capital funding alongside news and regulatory developments in the cryptocurrency industry. His writing appears on the finance, business, markets and future of money sections of the website. He did his post-graduation from the Indian Institute of Journalism and New Media (IIJNM) in Bengaluru.
