Mozamil Afzal, Global Chief Investment Officer, EFG Asset Management:

(Image: Courtesy)

Elevated U.S. valuations point to a risk of correction in the coming quarters. This risk is amplified by the U.S. political calendar, including the midterm elections in November 2026.

The past sixty years show that the S&P 500 typically experiences corrections of around 20 percent during midterm election years. Yet these episodes generally amount to temporary setbacks, with the market gaining nearly 30 percent on average in the twelve months following the trough.

«The past sixty years show that the S&P 500 typically experiences corrections of around 20 percent during midterm election years.»

Equity markets are supported by the expansionary fiscal policy of the Trump administration, whose effects should be most visible between late 2025 and the first half of 2026, as well as by deregulation plans from the White House and the likelihood of further Fed rate cuts.

AI-driven economic support – including the substantial investment required for its broader rollout – further reduces near-term recession risk.

The elevated Shiller P/E for the U.S. reflects the concentration in the «Magnificent Seven.» Valuations in the broader U.S. market and outside the U.S. remain in line with, or below, historical averages despite strong 2025 performance.

This underscores the value of diversification and the risks of overconcentration in a handful of mega-cap names.

Read next: Patrick Brechbühl, Head Equities & Alternative Investments, Swiss Life Asset Managers.