With the S&P 500 (SPX) trading at an elevated forward price-to-earnings (P/E) ratio of 23x, investors have increasingly grown worried about a pullback. That includes the CEOs of Goldman Sachs (GS) and Morgan Stanley (MS), although it might not be as scary as you think.
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“It’s likely there’ll be a 10% to 20% drawdown in equity markets sometime in the next 12 to 24 months,” said Goldman CEO David Solomon at the Global Financial Leaders’ Investment Summit in Hong Kong. Solomon added that 10% to 15% drawdowns during bull markets are normal and aren’t “something that changes your fundamental, your structural belief as to how you want to allocate capital.”
Morgan Stanley CEO Sees Opportunity in a Stock Market Pullback
Morgan Stanley CEO Ted Pick echoed Solomon’s view, saying that investors should “welcome the possibility” of a 10% to 15% drawdown as long as they aren’t “driven by some sort of macro-cliff effect.”
Pick believes that investors will focus more on company earnings next year, resulting in higher returns for stocks with strong growth. These higher returns could extend to companies outside of the “full” multiple tech sector, said Solomon.
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