Morgan Stanley and Goldman Sachs Warn of a Market Correction

Global markets may be facing a “reality check” after this year’s relentless rally, Goldman Sachs and Morgan Stanley warned on Tuesday, urging investors to prepare for a 10–20% market correction.

Stocks around the world continue to climb to record highs, driven by AI-linked companies and expectations of interest rate cuts. Over the past month, major U.S. indices have hit new peaks, Japan’s Nikkei 225 and South Korea’s Kospi reached fresh records, while China’s Shanghai Composite rose to its strongest level in a decade, supported by improving U.S.-China relations and a weaker dollar.

“There will likely be a 10–20% decline in equity markets over the next 12 to 24 months,” said Goldman Sachs CEO David Solomon during the Global Financial Leaders’ Investment Summit in Hong Kong. “Markets go up, and then they correct — that’s when people take a step back and reassess.”

However, Solomon emphasized that such pullbacks are a normal part of long-term bull cycles, and Goldman’s advice to clients remains unchanged: stay invested and review portfolio structure rather than trying to “time the market.”

“A 10–15% drop happens frequently, even during positive market cycles,” he added. “It’s not something that should change your fundamental convictions about how you allocate capital.”

Morgan Stanley CEO Ted Pick, who also participated in the panel, said investors should view such periodic corrections as a healthy phenomenon, not a sign of crisis.

“We should welcome the opportunity for 10–15% pullbacks that aren’t triggered by some macroeconomic breakdown,” he said.

The comments from Solomon and Pick come after IMF warnings of a potential sharp correction, along with remarks from Federal Reserve Chair Jerome Powell and Bank of England Governor Andrew Bailey on overvaluation in equity markets.

Bright Spots in Asia

Goldman Sachs and Morgan Stanley highlighted Asia as a key growth driver in the coming years, supported by the recent U.S.-China trade agreement. Goldman expects global investors to continue showing interest in China, emphasizing that the country remains “one of the world’s largest and most important economies.”

Morgan Stanley remains optimistic on Hong Kong, China, Japan, and India due to their unique growth stories. Corporate governance reforms in Japan and large-scale infrastructure projects in India were cited as long-term investment themes.

“It’s hard not to be excited about Hong Kong, China, Japan, and India — four entirely different stories, yet part of a shared Asian narrative,” Pick said, highlighting opportunities in artificial intelligence (AI), electric vehicles (EVs), and biotechnology in China.