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While markets continue to push higher, the foundations beneath them are weakening.
The S&P 500 has climbed more than 27% since April lows this year, driven by optimism around artificial intelligence, resilient consumer data, and expectations that interest rates will begin to fall. But this rally is increasingly detached from economic reality, and I believe a correction of up to 10% is now a strong possibility in the months ahead.
There is growing consensus among global institutions that investors are underestimating the risks building beneath the surface.
Several key macro indicators point to a deceleration. Inflation remains sticky. Consumer spending is showing signs of strain. Wage growth, while politically popular, is beginning to eat into corporate profitability. Trade tensions have returned, and with them, a resurgence in input cost inflation that will take time to filter through supply chains and company earnings.
We’re not talking about a market collapse. We are talking about a valuation reset that brings asset prices back in line with the fundamentals. Market optimism has been resilient, but it is now pricing in a near-perfect outcome—stable growth, tame inflation, and policy predictability. That combination is looking increasingly unlikely.
Recent data supports this view. The ISM services index just recorded its first contraction in more than a year. Consumer confidence has fallen. Unemployment claims are rising. At the same time, many companies are issuing cautious forward guidance as they begin to see pressure on both the top and bottom lines. The picture is becoming harder to ignore.
Yet, many investors remain positioned as though nothing has changed. This is perhaps the most troubling element. A large portion of the portfolios we review are still heavily concentrated in US equities, often without the investor realising it.
Funds that describe themselves as global or diversified frequently have 60 to 70% exposure to the US, particularly in large-cap growth names. This level of concentration is rarely justified and leaves investors highly vulnerable if sentiment shifts.
At deVere, we are advising clients to take a clear-eyed view of their current allocations and make adjustments where necessary.
Diversification is not only about spreading risk. It is also about positioning for growth, where the fundamentals support it. Right now, some of the most attractive opportunities lie beyond US borders.
Overseas Markets Offering Better Return Potential?
Singapore’s equity market has advanced nearly 5 percent over the past month, supported by steady exports, solid services data, and a stable political and monetary backdrop. Germany’s DAX is rebounding as industrial production improves and recession fears ease. The FTSE 100 continues to attract foreign capital, offering consistent income and relative insulation from the overvalued segments of the global tech trade.
We’re also monitoring opportunities across selected emerging markets. These are regions where public finances remain disciplined, demographic trends are supportive, and equity valuations remain below long-term averages. These markets are not without risk, but they offer something that overvalued developed markets often do not—room to grow.
This is not an argument for abandoning the US. It remains a critical component of global capital markets and should continue to play a central role in long-term investment strategies. However, no market stays in favour forever, and history is clear that periods of strong outperformance are usually followed by periods of repricing.
Those who take the time to diversify before the downturn retain control. They can protect recent gains, reposition thoughtfully, and take advantage of new opportunities as they arise. Those who wait until sentiment breaks often find themselves rebalancing under pressure.
A 10% correction in US equities would not be extreme by historical standards, but it would be significant for investors who are overexposed and underprepared. There is still time to make the necessary adjustments, but it would be a mistake to assume the current calm will last.
The conditions that have supported this rally are eroding, and the case for global diversification has rarely been stronger. Investors should act now, not out of fear, but out of recognition that cycles shift, capital moves, and history teaches us that returns are earned by those who adapt early.