U.S. stocks dipped on Tuesday as the leaders of Goldman Sachs and Morgan Stanley expressed concern that the market was entering a corrective phase. This raised worries among investors about the potential overvaluation of AI stocks.
The Dow Jones Industrial Average decreased by 450 points, or 1%, while the S&P 500 and Nasdaq saw declines of 1.2% and 1.7%, respectively.
During a financial summit in Hong Kong, Goldman Sachs CEO David Solomon remarked, “We’re likely to see a 10 to 20 percent drop in the stock market in the next 12 to 24 months.”
Solomon, who has previously likened AI stocks to the dot-com bubble from the late 1990s, noted that such pullbacks are normal within secular bull markets. He emphasized that his bank continues to encourage long-term investments.
“Even in a thriving market cycle, 10-15% corrections are pretty standard,” Solomon mentioned. “This doesn’t alter our core beliefs about capital allocation.”
Morgan Stanley’s CEO, Ted Pick, echoed similar sentiments, suggesting that investors should see these periodic dips as healthy for the market.
“We should embrace the idea of a 10-15% drawdown that isn’t triggered by a major economic downturn,” he commented during the same session.
Meanwhile, Palantir’s stock dropped 9.7% on Tuesday despite a positive earnings report, as analysts questioned whether the company’s valuation was justified.
Although the software company projected revenue of $1.33 billion for the current quarter, some analysts cautioned that this might not suffice to support its high valuation, given that Palantir’s stock has surged roughly 175% this year.
Other AI stocks like Oracle, AMD, Nvidia, and Amazon also experienced declines of 2.4%, 3.6%, 2.5%, and 1%, respectively.
On Monday, the market showed mixed results, with the S&P 500 and Nasdaq finishing higher, while the Dow dropped more than 200 points.
Investors are also wary of the economic implications related to the ongoing government shutdown, which hit 35 days on Tuesday, matching the longest on record.
Federal Reserve Chairman Jerome Powell, alongside Bank of England Governor Andrew Bailey and the International Monetary Fund, has also cautioned that stock valuations might continue to rise.
Goldman Sachs and Morgan Stanley expressed optimism about Asia, particularly following the recent U.S.-China trade agreement.
Goldman noted that China is one of the world’s most significant economies.
“It’s tough not to feel enthusiastic about the diverse narratives from Hong Kong, China, Japan, and India, all contributing to the larger Asian story,” stated Ted Pick from Morgan Stanley. He pointed out that China’s sectors in AI, electric vehicles, and biotechnology show considerable growth potential.
