## US Stock Market Outlook: Policy Battles and Mid-term Volatility Amid High Valuations

The S&P 500 index has recently faced dual challenges of valuation and policy. Data as of November 25 shows the index fluctuating around the 50-day moving average, with market volatility clearly increasing. The current P/E ratio of the S&P 500 is about 24 times, approximately 15% higher than the average over the past five years, with persistent overvaluation pressures on tech and AI-related stocks. In the short term, with momentum weakening, the market is expected to consolidate within the 6,500 to 6,800 point range.

### Policy Uncertainty Dominates Recent Trends

Interest rate policies have become a key variable influencing tech stock valuations. Fed official Waller recently stated that a rate cut in December is reasonable, but the policy direction for January 2026 remains highly uncertain. Investors need to closely monitor official interest rate statements and economic data, as interest rates and inflation trends will directly impact the performance of high-valuation tech sectors. Market consensus suggests that, in the short term, interest rates will continue to be the primary factor driving tech stock valuations.

### Value Stocks Contribution and Sector Rotation Trends

So far in 2024, the S&P 500 has risen about 12%, mainly driven by large tech stocks and AI themes. Leading companies like Nvidia, Microsoft, and Apple, along with related AI investment sectors, have experienced significant volatility recently. The top ten weighted stocks in the S&P 500 contributed over 70% of the total gains. If the momentum of these large-cap stocks gradually slows, the overall market may shift toward a consolidation phase.

Current capital allocation strategies have shifted. The capital advantage of a single tech and AI sector is gradually diminishing, with funds flowing into value stocks (energy, industrials), defensive sectors (healthcare, utilities), and fixed income assets. Compared to gold, oil, and major foreign exchange assets, the S&P 500 still exhibits higher short-term volatility during capital rotation, but mid- to long-term consolidation could reduce the risk of extreme pullbacks.

### 2026 US Stock Market Outlook and Investment Strategy

According to conservative forecasts, the mid-term S&P 500 index may consolidate or slowly rise within the 7,000 to 7,500 point range. The Fed’s policy direction and corporate earnings reports in early 2026 will be critical in determining whether the tech sector can continue supporting the index’s rise. The Financial Times reports that Hudson Bay Capital uses sentiment-difference models to estimate that, under an extremely optimistic scenario, the S&P 500 could surge to 25,000 points. However, analysts believe this scenario relies on multiple assumptions, including policy easing, improved corporate earnings, and sustained market sentiment.

In reality, predicting the US stock market requires a comprehensive analysis of tech sector earnings validation, bond yields, Fed policy trends, and capital rotation among diverse assets. Investors should adjust their allocation strategies by maintaining exposure to the tech sector while diversifying into value, energy, defensive sectors, and fixed income assets to reduce reliance on any single industry. Diversification will be key to adapting to the current environment, especially amid high valuations and policy uncertainties, emphasizing the importance of risk management and asset allocation.