The global stock market rally, which saw remarkable momentum in 2025, is facing increasing scrutiny as the new year progresses. While equities have begun 2026 on a solid footing, with the MSCI All Country World Index reflecting a gain of over 2% and reaching a new record after a 20.6% increase in 2025, seasoned investors are cautioning that the market’s upward trajectory may soon encounter challenges.
Timothy Moe, chief Asia-Pacific equity strategist at Goldman Sachs, highlighted that markets have not experienced a meaningful pullback in over nine months, making them potentially vulnerable to a correction. Historically, markets have tended to undergo a 10% correction approximately every eight to nine months. “Having had a very good 2025, particularly in Asian markets, the historical clock is ticking in terms of markets being overdue for some sort of a correction,” Moe stated. He emphasized that if geopolitical tensions serve as a catalyst, a pullback could be imminent.
Despite ongoing geopolitical tensions, including recent confrontations over Greenland, investors have largely dismissed these threats. The markets have rallied previously amid U.S. President Donald Trump’s shifting positions on tariffs, which has led to renewed discussions surrounding the “TACO” trade — a belief that aggressive rhetoric will yield to compromise.
Moe drew an analogy to a chemistry experiment, suggesting that while markets seem quiet, a sudden change could occur: “You keep dropping, dropping, dropping… and then with one final drop, the color changes.” He cautioned that while he remains optimistic, especially regarding Asian equities, the importance of risk management increases during periods of stretched valuations and exuberant sentiment.
Conversely, Kevin Gordon from the Schwab Center for Financial Research advised against overly focusing on how long it has been since the last correction. He acknowledged that while the risk of a correction has increased, the timeframe alone does not necessitate a market downturn. He noted that factors such as stretched valuations and rising sentiment make pullbacks more likely to be severe when they do occur. “There needs to be a negative catalyst,” Gordon articulated, mentioning that potential triggers could include geopolitical developments or disappointing earnings forecasts.
Miroslav Aradski from BCA Research pointed out that different methods of measuring market drawdowns can yield different interpretations. For instance, the S&P 500 has gone 185 days without a 10% drop, which doesn’t inherently signal an imminent correction. However, he warned about the dangers of complacency stemming from prolonged market calmness. He reflected on the unpredictability of geopolitical risks, stating, “In the absence of market discipline, Trump has more leeway to pursue potentially destabilizing policies.”
From a technical perspective, Jay Woods, chief market strategist at Freedom Capital Markets, observed that current market conditions exhibit signs of late-cycle behavior. Strong corporate earnings have not consistently led to significant price gains, and the market has narrowed its leadership to a few megacap stocks. “The major indexes have stalled for now, but overall market breadth remains healthy,” Woods noted, while also indicating that any setbacks among leading technology stocks could have substantial repercussions on the market.
Gordon underscored the rising skepticism concerning the sustainability of the artificial intelligence boom, as doubts increase about whether heightened expenditures by leading tech firms will continue to translate into earnings growth. “That won’t be the case forever,” he predicted, pointing toward a potential shift in market leadership towards small-cap stocks and cyclical sectors.
As investors navigate this complex landscape, the possibility of increased volatility looms, reminding participants of the importance of vigilance amid an otherwise buoyant market outlook.
