The global stock market rally could continue in borrowing time after a torrid 2025, with veterans warning that a correction is becoming more likely as soaring valuations collide with rising geopolitical and policy risks. The stock market entered 2026 on stable footing after a strong year. The MSCI All Country World Index, which measures the performance of more than 2,500 large- and mid-cap stocks from developed and emerging markets, is up more than 2% so far this year. According to LSEG data, it rose by 20.6% in 2025, but on January 15th it set a new record. However, some investors note that the lack of a major pullback over the past nine months has made the market increasingly vulnerable to sudden changes in sentiment. “Markets, especially Asian markets, had a very strong year in 2025…and with over nine months without a meaningful pullback, the clock of history is ticking in that the market is past the point of some kind of correction,” said Timothy Mo, chief Asia-Pacific equity strategist at Goldman Sachs. Over the past 15 to 35 years, the market has typically experienced corrections of 10% or more every eight to nine months, Mo said. “And we never had anything like that,” he added. “I think investors need to be aware that if there is a trigger in the form of geopolitical risk concerns, there could be some backlash.” Investors have largely ignored bouts of geopolitical brinkmanship, treating recent events such as the standoff over Greenland as noise rather than a permanent risk. Markets also rose after US President Donald Trump recently lifted his threat of tariffs in an effort to reach a deal. In response, the topic of the so-called “TACO” deal, short for “Trump Always Chickens Out,” resurfaced, reflecting a belief that aggressive rhetoric will eventually give way to compromise. Moe likened the current investor sentiment to a chemical experiment where nothing seems to happen until suddenly it happens. “You keep dripping, dripping, dripping, and nothing happens and the last drop changes color,” he said. “Markets tend to ignore[geopolitical risks]until they really matter.” Despite these concerns, Mo said he remains broadly bullish, especially on Asian stocks, but noted that risk management is becoming increasingly important. When valuations are high and sentiment is frothy, declines are likely to be more severe. Kevin Gordon of the Schwab Center for Financial Research and colleagues cautioned against placing too much emphasis on how much time has passed since the last correction when assessing market vulnerabilities. Kevin Gordon, head of macro research and strategy at the Schwab Center for Financial Research, said the risk of a correction is rising, but not necessarily because markets have gone too long without one. “When valuations are inflated and sentiment is frothy, the decline in stocks is likely to be more severe,” Gordon said. Still, optimism alone rarely derails markets. “We need a negative catalyst.” Potential triggers range from geopolitics to policy shifts to disappointing performance. Gordon said that if measures such as credit card interest rate caps or escalating geopolitical tensions start to pose a material risk to corporate earnings or cause bond yields to rise sharply, they could hurt stock prices. Miroslav Aradsky, associate vice president of BCA Research’s global investment strategy team, said different ways of measuring drawdowns could yield very different conclusions. Using rolling peaks, which measure the percentage decline from the most recent market high, rather than calendar periods, the S&P 500 went 185 days without a 10% drawdown, which in itself does not indicate an impending correction. Still, Aradsky warned that prolonged calm could breed complacency. Geopolitics remains a particularly unpredictable risk, even though markets appear to be becoming increasingly insensitive to political rhetoric. “There is a deep contradiction at the heart of the TACO deal,” Aradosky said, referring to the market’s tendency to undermine policy threats on the assumption that they will be reversed. “Without market discipline, President Trump has more room to pursue potentially destabilizing policies. This means that when the next crisis comes, it could be even bigger than the last one.” Jay Woods, chief market strategist at Freedom Capital Markets, said that from a technical perspective, the market is showing classic signs of late-cycle behavior. Strong earnings have not consistently translated into sustained stock price increases, and leadership has been narrowed to mega-cap stocks. “The major indexes have stalled for now, but overall market breadth remains healthy,” Woods said, citing rotations into small-cap stocks, materials and energy. Still, market watchers warn that if the biggest technology stocks stumble, the impact could be devastating. “The Nasdaq 100 hasn’t hit a new high since October of last year and could be the first of the major indexes to correct,” Woods added. The Schwab Center’s Gordon also cited the sustainability of the artificial intelligence boom as a key risk. There is growing skepticism in the market as to whether the rapid increase in capital investment by hyperscalers will continue to lead to profit growth. “It’s not going to last forever,” he said, noting that leadership has already begun to shift toward small-cap stocks and more cyclical sectors.
