Investopedia·2025-11-04 19:45Core Insights - Goldman Sachs CEO David Solomon and Morgan Stanley's Ted Pick predict a potential stock market correction of 10% to 20% within the next 12 to 24 months, indicating concerns over high valuations and a possible AI bubble [3][8] - Despite these warnings, both executives maintain an optimistic outlook for the stock market, suggesting that investors should stay invested and reassess their portfolio allocations [6][11] Market Concerns - Wall Street is increasingly worried that the AI-driven stock market rally may be creating a bubble, with a brief correction potentially helping to reset valuations and investor expectations [4][9] - The tech-heavy Nasdaq Composite index experienced a nearly 2% drop following the comments from Solomon and Pick, with high-valuation AI stocks, such as Palantir, facing significant declines despite strong earnings [5][9] Valuation Perspectives - Current valuation models indicate that risk asset prices are above fundamental values, raising the likelihood of corrections during adverse market conditions [10] - Some analysts argue that the tech companies leading AI investments are more financially secure and better valued compared to those during the Dotcom era, suggesting a more stable environment [10][11] Economic Environment - The Federal Reserve is expected to lower interest rates over the next year, which could stimulate the economy and mitigate the risk of a credit crunch that might burst an asset bubble [11] - Solomon notes that while tech valuations are high, the broader market has areas with more reasonable multiples, especially in light of earnings growth [11]