Wall Street CEOs warn of market drop ahead
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Illustration: Sarah Grillo/Axios
Stocks are under pressure as the CEOs of Goldman Sachs and Morgan Stanley warn of a potential drop in the market.
Why it matters: Equities have rallied in the face of a shutdown, tariffs, macro uncertainty and geopolitical headwinds. The only thing they can't withstand appears to be a warning from Wall Street.
What they're saying: "It's likely there'll be a 10 to 20% drawdown in equity markets sometime in the next 12 to 24 months," Goldman Sachs CEO David Solomon told the Global Financial Leaders' Investment Summit in Hong Kong.
- "We should also welcome the possibility that there would be drawdowns, 10 to 15% drawdowns that are not driven by some sort of macro cliff effect," Ted Pick, CEO of Morgan Stanley, said on the same panel.
Zoom in: It's not just the Wall Street pros warning of a pullback.
- Michael Burry who made his fortune shorting the housing market ahead of the financial crisis (and was portrayed by Christian Bale in the movie "The Big Short") is shorting Nvidia and Palantir, per his latest 13F filing.
- Burry's moves are watched, and often copied, by retail investors in particular.
Yes, but: Drawdowns like this are normal. (We had a nearly 20% one as recently as April, remember?)
- Solomon said as much in his remarks, noting that 10 to 15% market drops can happen "often, even through positive market cycles."
- Pick called these kinds of pullbacks "healthy."
Reality check: Portfolio managers have been warning all year of volatility that could pressure stocks as we head into year-end.
- In pre-market trading, stocks are down only about 1%, which is nowhere near a drawdown.
What we're watching: Drawdowns don't stay long in this bull market because of persistent dip buyers.
- Strategists tell Axios that any break in that pattern could spook retail investors, and therefore cause a bigger and longer lasting pullback.
