Goldman Sachs and Morgan Stanley Warn: Global Stock Markets May Face a “Reality Check” Ahead

Top executives from Goldman Sachs and Morgan Stanley warn that global equity markets could see a 10–20% correction within the next 12–24 months, even as they remain optimistic about long-term growth prospects in Asia.

After months of impressive gains, global financial markets may soon face a “reality check.” Two of Wall Street’s most influential voices — David Solomon, CEO of Goldman Sachs, and Ted Pick, CEO of Morgan Stanley — have both warned that stock markets could experience a 10–20% correction in the next 12–24 months, amid soaring valuations and investor overconfidence.

1. Warnings from Wall Street Leaders

Speaking at the Global Financial Leaders’ Investment Summit in Hong Kong on November 4, David Solomon said:

“There is a real possibility that we’ll see a 10–20% pullback in the equity markets over the next one to two years. Markets rise, and then they pull back — that’s how investors reassess valuations.”

His remarks come as global stock indices, including the S&P 500, Nasdaq Composite, Nikkei 225 (Japan), and Kospi (South Korea), have all reached record highs in 2025. The rally has been driven largely by AI-related optimism and expectations of interest rate cuts from central banks.

However, Solomon emphasized that such corrections are a normal part of long-term bull markets. He advised investors to stay invested and focus on portfolio reallocation rather than trying to time the market.

“A 10–15% pullback happens quite often, even in healthy markets,” he noted. “It doesn’t change the fundamental confidence or the structural approach to capital allocation.”

2. Morgan Stanley: “Embrace Corrections as Part of a Healthy Market”

Echoing Solomon’s outlook, Ted Pick, CEO of Morgan Stanley, argued that investors should welcome periodic market pullbacks as a sign of stability, not crisis.

“We should see 10–15% declines as a normal part of the market cycle — as long as they’re not triggered by a major macro shock,” he said.

According to Pick, after a strong run driven by the AI boom, many tech stocks have reached historically high valuations, raising concerns that price levels have outpaced corporate fundamentals.

His comments align with a recent IMF report that warned global equity markets could face significant downside risks as valuations exceed historical averages.

3. Why a Market Correction Isn’t Necessarily Bad

Both Goldman Sachs and Morgan Stanley stressed that a 10–20% correction should not be viewed as a negative event. Rather, it serves several crucial functions for a sustainable market:

Tames excessive optimism, especially in overheated sectors like AI and technology;

Rebalances valuations, allowing investors to reassess long-term potential;

Strengthens market resilience, preventing asset bubbles from forming.

Solomon further advised investors to maintain a long-term perspective instead of focusing on short-term market fluctuations.

“Timing the market matters less than time in the market,” he said.

4. Asia – The Bright Spot in a Shifting Global Landscape

Despite the warnings, both Goldman Sachs and Morgan Stanley remain bullish on Asia, which they see as the next engine of global growth in the coming years.

Goldman Sachs projects that global investors will continue allocating capital to Asian markets, particularly China, calling it “one of the most important and influential economies” in the world.

“Global capital will keep flowing into Asia — a region that combines growth, reform, and technological potential,” Solomon added.

Morgan Stanley, meanwhile, is optimistic about Hong Kong, China, Japan, and India, highlighting each market’s unique growth narrative:

Japan is benefiting from corporate governance reforms and flexible monetary policy.

India is experiencing a boom in infrastructure investment and digital transformation.

China is focusing on strategic industries like AI, electric vehicles, and biotechnology to reinvent its growth model.

Hong Kong is regaining its position as a stable global financial hub.

“It’s hard not to be excited about Asia,” said Pick. “Each market tells a different story, but together they represent the future of global growth.”

5. Strategic Advice for Investors

With volatility on the horizon, Goldman Sachs and Morgan Stanley offer several key takeaways for investors:

Stay calm and stay invested: Avoid panic selling. Exiting during volatility often means missing the rebound.

Reassess portfolio allocation: Reduce exposure to overheated sectors like AI and tech, and diversify across asset classes.

Increase regional diversification: Consider greater exposure to Asia’s high-growth markets.

Use corrections as opportunities: For long-term investors, a 10–15% decline can be a chance to accumulate quality assets at more reasonable prices.

6. The Medium-Term Outlook: Risks and Opportunities Intertwined

While short-term corrections may be unavoidable, analysts believe that the 2026–2027 period could usher in a new growth cycle, supported by several positive factors:

Continued expansion in AI and green technologies;

A global easing of monetary policies;

Reduced geopolitical tensions, improving capital mobility.

However, prolonged slowdowns in global growth or rising sovereign debt could extend volatility and dampen investor sentiment.

Conclusion

The recent warnings from Wall Street’s top executives are not meant to spark fear but to reset expectations after months of exuberance. With stock valuations running high and speculative momentum in AI-driven sectors, a 10–20% correction could serve as the “necessary cooling phase” that restores balance.

As David Solomon put it:

“Markets move in cycles. The goal isn’t to predict the wave — it’s to stay steady when it passes.”

FAQs

1. Will markets really fall by 20%?
No one can predict the exact timing or magnitude, but both Goldman Sachs and Morgan Stanley see a high likelihood of a 10–20% correction as part of the natural market cycle — not a sign of crisis.

2. What should investors do if a correction occurs?
Avoid panic selling. Focus on rebalancing portfolios, diversifying regionally, and maintaining a long-term investment strategy.

3. Why is Asia seen as a bright spot?
Asia offers strong growth fundamentals — a young population, rapid digitalization, and proactive economic reforms — especially in India, Japan, and China.

4. Could a correction create opportunities?
Yes. A moderate correction could reset valuations, creating entry points for long-term investors and new capital inflows.