U.S. stock futures fell sharply on Tuesday as warnings from major Wall Street banks about a potential market correction rattled investor confidence, raising concerns that the recent rally driven by artificial intelligence enthusiasm may be reaching unsustainable levels.
S&P 500 futures slipped 1.2% while Nasdaq 100 futures dropped 1.6% in premarket trading, signaling a weak open for American equities. Dow Jones Industrial Average futures declined approximately 300 points, or 0.6%.
Banking CEOs Issue Correction Warnings
The market downturn came after chief executives from Goldman Sachs and Morgan Stanley warned investors at the Global Financial Leaders’ Investment Summit in Hong Kong that equity markets could face a significant pullback in the coming months.
“It’s likely there’ll be a 10 to 20% drawdown in equity markets sometime in the next 12 to 24 months,” Goldman Sachs CEO David Solomon told attendees. “Things run, and then they pull back so people can reassess.”
Morgan Stanley CEO Ted Pick echoed those concerns, though he characterized such movements as healthy market dynamics rather than crisis signals.
“We should welcome the possibility that there would be drawdowns, 10 to 15% drawdowns that are not driven by some sort of macro cliff effect,” Pick said.
Both executives emphasized that periodic corrections are normal features of bull markets. Solomon acknowledged that investors shouldn’t attempt to time the market but should instead review their portfolio allocations to ensure proper diversification.
Tech Stocks Under Pressure
The warnings hit technology stocks particularly hard, with the sector that has led this year’s market gains showing signs of vulnerability despite strong fundamentals.
Shares of Palantir Technologies tumbled 8% in premarket trading even after the AI software company exceeded Wall Street’s third-quarter expectations and issued robust guidance.
The company reported 63% revenue growth and projected current-quarter revenue of $1.33 billion, well above the $1.19 billion analysts expected.
“Their results were good but markets were disappointed at the lack of company visibility for the whole of 2026,” Deutsche Bank strategist Jim Reid noted.
The mixed reaction to Palantir’s strong results highlighted growing investor anxiety about whether current valuations can be justified, even when companies deliver impressive performance.
Bubble Concerns Mount
The warnings from Wall Street’s top executives come as the S&P 500 continues its meteoric rise, repeatedly hitting record highs and drawing comparisons to the dot-com bubble of the late 1990s.
The benchmark index closed at 6,851.97 on Monday, hovering just 1% below all-time highs after crossing 6,800 for the first time in October.
Markets have largely ignored mounting concerns about inflation, elevated interest rates, policy uncertainty from shifting trade dynamics, and the ongoing federal government shutdown, now in its fifth week.
However, narrow market breadth has raised red flags, with more than 300 stocks in the S&P 500 closing lower on Monday despite the index finishing higher.
This pattern of concentration, where gains are driven primarily by a handful of large technology stocks, has historically preceded market corrections.
Additional Warning Signs
The caution from Goldman Sachs and Morgan Stanley follows similar warnings from other financial leaders:
- JPMorgan Chase CEO Jamie Dimon said last month he was “far more worried” about a significant correction within the next six months to two years than most market participants
- Bridgewater Associates’ co-chief investment officers warned earlier this week that investors are overlooking mounting risks to market stability and the limits of the AI boom
- Federal Reserve Chair Jerome Powell noted in September that “equity prices are fairly highly valued”
- The Bank of England and International Monetary Fund have both cautioned about stretched valuations, particularly in AI-related technology stocks
Morgan Stanley’s Chief Investment Officer Lisa Shalett advised clients in a note Monday to consider taking profits in speculative and high-beta stocks, redeploying capital to large-cap core and quality names.
Markets Resilient Despite Headwinds
Despite the warnings and Tuesday’s selloff, many analysts view potential corrections as healthy consolidation phases rather than the beginning of a bear market.
Solomon emphasized that his comments shouldn’t be interpreted as a signal to exit equities entirely.
“When you have these cycles, things can run for a period of time,” Solomon explained. “But there are things that will change sentiment and will create drawdowns, or change the perspective on the growth trajectory, and none of us are smart enough to see them until they actually occur.”
Global Market Impact
The warnings reverberated across global markets. European stocks opened sharply lower, with the STOXX Europe 600 falling 1.4% in early trading and the FTSE 100 down 1.1%.
Asian markets closed mixed, with Japan’s Nikkei 225 declining 1.7% and South Korea’s KOSPI posting the steepest losses at 2.4%.
Despite the short-term volatility, both Goldman Sachs and Morgan Stanley highlighted Asia, particularly China, as a bright spot for future growth, citing the recent U.S.-China trade pact and continued investor interest in major Asian economies.
Looking Ahead
With key economic data delayed by the government shutdown and uncertainty around the Federal Reserve’s next moves, volatility may remain elevated in the coming weeks.
Market participants will closely monitor upcoming corporate earnings reports and statements from Fed officials for signals about the economy’s trajectory.
Year-to-date, the S&P 500 has gained approximately 17%, while the tech-heavy Nasdaq has surged nearly 24%, powered largely by enthusiasm for generative AI and expectations of transformative technological growth.
Whether Tuesday’s selloff marks the beginning of the correction Wall Street’s top executives are predicting, or merely another temporary dip in a resilient bull market, remains to be seen.
What’s clear is that after a remarkable run, investors are being urged to reassess their exposure and prepare for potential turbulence ahead.
Also Read
Pi Network Rebounds: Could This Mark the End of the Price Plunge?
Battle for Metsera: Pfizer Accuses Novo of Blocking US Rival