Since January 2025, the S&P 500 has gained more than 14%, and for most of the past decade, betting against America has been a losing trade. But a major Wall Street institution is now saying that era may be coming to an end.
Andrew Garthwaite, head of global equity strategy at UBS, downgraded American equities to “benchmark” in a global equity portfolio — effectively saying investors should look elsewhere for above-average gains.
And, so far this year, the data backs him up. The MSCI World ex-US index has gained about 4.2% in 2026, while the S&P 500 is down slightly.
What UBS is saying
To be clear, this isn’t a crash call — another UBS analyst, Sean Simonds, still has a year-end S&P 500 target of 7,500, implying a more than 10% upside. What UBS argues is that the structural tailwinds that have justified years of American outperformance are weakening. What are these?
- The dollar is weakening: UBS sees “asymmetric structural downside risks” for the dollar and forecasts the euro and other currencies climbing as the dollar falls.
- Corporate buybacks have lost their edge: This was a key to American stock performance in the past, but global peers have now caught on. The combined shareholder yield from dividends and buybacks is now about half that of Europe.
- Valuations are extreme: UBS calculates that, on average, the price-to-earnings (P/E) ratios for U.S. stocks are 35% above international stocks. That premium was just 4% in 2010.
- America isn’t as predictable as it once was: The Trump administration’s policy agenda has created an environment in which businesses are less able to predict and plan for the future. The trade tariffs, proposals to cap credit card rates, limits on private equity in housing, drug pricing scrutiny, and direct federal government equity investments in private companies add layers of uncertainty that are virtually impossible to model.
What history says
Two historical data points deserve serious attention.
First, the UBS analysis shows that historically, when the dollar’s trade-weighted index falls by 10%, U.S. stocks underperform by roughly 4%.
Second, there is the overvaluation in American stocks. The cyclically adjusted price-to-earnings (CAPE) ratio, a measure of the overall valuation of the stock market, sits at roughly 40. The historical median is around 16, and the only other time the CAPE exceeded 40 (excluding a brief distortion during COVID-19) was the peak of the dot-com bubble in 1999–2000, when it hit 44.2 before the market fell roughly 50%.
To be sure, today’s megacaps generate real earnings — the stock market of today isn’t full of companies like Pets.com. But the CAPE tells us something significant about starting valuations and long-term returns. Nobel laureate Robert Shiller, the creator of the metric, points out that real returns following unusual peaks in the CAPE ratio are depressed for years. He recently estimated that, based on these levels, the S&P 500 might deliver average nominal total returns of just 1.5% annually over the next decade.
The likely end of the bull market
The combination of extreme valuations, the so-far underwhelming impact of AI given the unprecedented investment, and global instability makes me defensive. I believe the bull market may be coming to an end within the next 12 to 18 months.
But I want to be clear: I am not saying you should panic sell or dump your portfolio. Trying to actually time the market is almost always a losing game. Staying invested over the long term has been the winning formula since the modern stock market began.
But I am saying that this is a good moment to stress-test your holdings. Can the companies in your portfolio survive a serious drawdown? Can they come out stronger on the other side? If the answer is yes, you’re probably in a better position than most.
And diversity is always your friend. Investing in companies outside the U.S. and unrelated to the AI trade is a good idea. If you are looking for U.S. stocks to perform as they have in the past decade, you may be disappointed.