U.S. stock indexes fell on Tuesday, deepening losses as concerns over stretched valuations in artificial intelligence companies weighed heavily on the market. Warnings from Wall Street giants also fueled fears that equities could be heading for a correction.
Global markets may be nearing a pullback after a relentless rally this year. Executives from Goldman Sachs and Morgan Stanley cautioned investors on Tuesday to prepare for a potential market decline within the next two years.
Global equities have risen to record highs in 2025, driven by strong gains in AI-related stocks and expectations of lower interest rates. Last month, major U.S. indexes reached new peaks, while Japan’s Nikkei 225 and South Korea’s Kospi also hit record levels. China’s Shanghai Composite climbed to its highest point in a decade, supported by easing trade tensions between the U.S. and China and a weaker dollar.
Goldman Sachs CEO David Solomon, speaking at the Global Investment Leaders Summit in Hong Kong, said: “We’re likely to see a 10% to 20% decline in equity markets within the next 12 to 24 months.” He added: “Markets move higher and then reset to allow investors to reassess valuations.”
Solomon emphasized that such cyclical pullbacks are a normal part of long-term bull markets, noting that the bank’s consistent advice remains to stay invested and rebalance portfolios rather than attempt to time the market. “A 10% to 15% market drop happens frequently, even during periods of economic growth,” he said. “That doesn’t change the structural outlook for capital allocation.”
Morgan Stanley CEO Ted Pick echoed that sentiment, saying investors should welcome corrections as a sign of a healthy market, not a financial crisis. “We should embrace 10% to 15% pullbacks as long as they’re not triggered by a major economic shock,” he said.
Their comments followed warnings from the International Monetary Fund about the risk of a sharp correction, as well as concerns voiced by Fed Chair Jerome Powell and Bank of England Governor Andrew Bailey about excessive equity valuations.
Why are correction warnings increasing?
Tech stocks have become a major drag on the Nasdaq, with six of the “Magnificent Seven” — the leading AI-driven stocks behind this year’s rally — declining in the latest session. The Philadelphia Semiconductor Index (SOX) fell 4%.
JPMorgan Chase CEO Jamie Dimon had also warned last month of rising risks of a major correction within six months to two years, citing geopolitical tensions as a key factor.
Chuck Carlson, CEO of Horizon Investment Services in Indiana, said: “Investors appear more concerned about valuations now than they have been recently, at least in this session.” He added: “Many of these companies have very high valuations, while their earnings are strong but not extraordinary — the perfect setup for profit-taking.”
Meanwhile, the partial U.S. government shutdown — now close to becoming the longest in history — has halted the release of official data, forcing markets to rely on private indicators such as the ADP employment report due Wednesday.
Investors are also parsing remarks from Federal Reserve officials for clues on how the central bank will shape policy amid the data blackout.
Bright spots in Asia
Both U.S. banks pointed to Asia as a key area of optimism in the years ahead, supported by recent developments such as the U.S.–China trade deal.
Goldman Sachs expects global investors to continue channeling capital into China, emphasizing that it remains one of the world’s largest and most vital economies.
Morgan Stanley remains bullish on Hong Kong, China, Japan, and India, highlighting their unique growth narratives — from Japan’s corporate governance reforms to India’s infrastructure expansion — as long-term investment themes.
“It’s hard not to feel optimistic about Hong Kong, China, Japan, and India,” Pick said. “Four very different stories, but all part of the same broader Asian growth narrative.”
He added that China’s artificial intelligence, electric vehicle, and biotechnology sectors stand out as the main growth drivers in the coming years.
