Even David Solomon, the CEO of Goldman Sachs, has recently sounded the alarm on today’s stock market highs. He thinks the stage is set for a potentially big drawdown in equity markets to become manifest within the next 12-24 months. His hesitance reflects the sentiments of many other financial luminaries. This points to a growing concern over the durability of the current bull market.
In a recent interview with StateImpact Pennsylvania, Solomon offered his expertise on past market trends. In particular, he pointed out the explosive growth in broadband adoption in the late 1990s and early 2000s. He recorded this era as the fertile ground that dug up many of the world’s most prominent technology firms. It also created crushing losses among investors, the bubble bursting in what would later be infamously dubbed the “dotcom bubble.”
Solomon pointed out that investors have a tendency to get too bullish on the bull run, causing an underestimation of risks.
“And when [investors are] excited, they tend to think about the good things that can go right, and they diminish the things you should be skeptical about that can go wrong … There will be a reset, there will be a check at some point, there will be a drawdown.” – David Solomon
He recently let slip his rosy scenario about the potential of artificial intelligence (AI). In fact, he predicts that a whole lot of the capital going in today will fail to see returns. This state of affairs has the potential to lead to chaos at scale, leaving a multitude of angry investors in the wake of unmet expectations.
Solomon said how far the market goes down will be a function of how much longer this current bull market last.
“You’re going to see a similar phenomenon here.” – David Solomon
This forecast fits in with other chicken-little hectoring from odd bedfellows on Wall Street. In fact, Jeff Bezos recently referred to the current boom in AI investments as an “industrial bubble.” In the other camp, Leon Cooperman explained on CNBC that we are in the late stages of a bull market which tends to create bubbles.
Investor legend Warren Buffett has similarly warned against the dangers of late-stage bull markets, underscoring the potential for speculative mania.
Karim Moussalem, the chief investment officer of equities at Selwood Asset Management, discussed his view on the AI trade. He cautioned that this prosperity was at risk of coming apart due to major perils on the horizon. Moussalem remarked,
“The AI trade is beginning to resemble one of the great speculative manias of market history.” – Karim Moussalem
Even with all of this worry in the air, Solomon said he wouldn’t fully panic about his own investments. And he had doubled down on his own belief in the market’s potential when he announced,
“I sleep very well. I’m not going to bed every night worried about what will happen next.” – David Solomon
Additionally, he recognized the transformative power of emerging technologies.
“Generally speaking, I think what’s super exciting is the technology is expanding, new companies are being formed, and the potential of this technology deployed into the enterprise can be very, very powerful. So, it’s an exciting time.” – David Solomon