Since January 2025, the S&P 500 has posted gains exceeding 14%, consistently reflecting strong performance over the last decade. However, recent insights from a major Wall Street institution suggest that this trend may be shifting. Andrew Garthwaite, head of global equity strategy at UBS, has downgraded American equities to a “benchmark” status within global portfolios, signaling to investors that opportunities for above-average gains may lie elsewhere.
This year’s data aligns with UBS’s perspective, indicating a more competitive landscape. The MSCI World ex-US index has recorded a 4.2% increase in 2026, while the S&P 500 has seen a slight decline. UBS argues that the favorable structural factors that have historically underpinned American stock performance are beginning to wane.
Key factors influencing this sentiment include:
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Weakening Dollar: UBS predicts “asymmetric structural downside risks” for the U.S. dollar, forecasting that other currencies, particularly the euro, will strengthen as the dollar declines.
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Decreased Impact of Corporate Buybacks: Corporate buybacks, once a significant driver of the U.S. stock market’s success, are losing their efficacy as global competitors implement similar strategies. The combined yield from dividends and buybacks in the U.S. has dropped to approximately half that of European firms.
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Extreme Valuations: UBS notes that U.S. stocks have an average price-to-earnings (P/E) ratio that is 35% higher than that of international stocks—compared to a mere 4% premium in 2010.
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Increased Uncertainty: The policy landscape, shaped by the Trump administration, has contributed to an environment rife with unpredictability. Factors such as trade tariffs, proposed caps on credit card rates, constraints on private equity investments in housing, scrutiny over drug pricing, and federal equity investments in private firms have added complexities that complicate business forecasting.
Historically, UBS’s analysis reveals that a 10% decline in the dollar’s trade-weighted index correlates with a 4% underperformance of U.S. stocks. Additionally, the cyclically adjusted price-to-earnings (CAPE) ratio, currently around 40, is drastically elevated compared to the historical median of 16. This level of overvaluation is reminiscent of the dot-com bubble, when the CAPE reached 44.2 and was followed by a staggering market correction.
While today’s leading companies are far more stable and profitable than those during the peak of the dot-com bubble, concerns about long-term returns remain. Nobel laureate Robert Shiller, who developed the CAPE metric, indicates that unusual peaks often lead to subdued real returns for years, estimating that the S&P 500 could yield only 1.5% annual nominal returns over the next decade.
The convergence of high valuations, underwhelming technological impacts, particularly from artificial intelligence, and global volatility raises alarms about the sustainability of the current bull market. Observers speculate that this favorable market phase may come to an end within the next 12 to 18 months.
Despite this cautious outlook, experts emphasize the importance of not succumbing to panic selling or attempting to time the market—strategies that often prove costly. Instead, investors are advised to assess their portfolios for resilience. Key questions include whether individual holdings can withstand significant downturns and emerge robustly afterward. Moreover, diversifying investments, particularly by including companies outside the U.S. and those not solely dependent on the AI trend, may prove beneficial.
As the landscape evolves, the prospect of enduring performance akin to the last decade for U.S. stocks appears increasingly challenging. Investors are encouraged to remain vigilant and strategic as they navigate this uncertain terrain.
