US stocks face valuation pressure: Can the tech sector rise again by 2026? Asset allocation faces a reshuffle.

Since the recent peak and subsequent pullback, the performance of the U.S. stock market’s S&P 500 index has attracted widespread market attention. As of November 25, the index has approached the 50-day moving average, with intraday volatility significantly increasing, reflecting fluctuations in investor sentiment. One of the most noteworthy phenomena is that the P/E ratio of the S&P 500 is about 24 times, which is 15% higher than the average level of the past five years. This high valuation state is becoming more prominent under the influence of Tech Stocks and AI themes. In the short term, if the rally in the technology sector cannot be sustained, the index may consolidate within the 6,500–6,800 point range, forming a prolonged period of oscillation.

The Double-Edged Sword Effect of Tech Stocks

Since the beginning of the year, the S&P 500 has risen approximately 12%, but behind this gain lies structural risks. Data shows that the top ten weighted stocks contribute over 70% of the total increase, indicating that the upward momentum of the market is highly concentrated in a few tech giants like Nvidia, Microsoft, and Apple. In this scenario, if these companies’ growth momentum slows down or market expectations for their valuations adjust, the entire index could face significant downward pressure. Currently, volatility in the Tech Stocks sector has intensified, serving as a reminder to investors that over-reliance on a single theme is gradually revealing its risks.

Uncertainty Risks of Interest Rates and Policies

Federal Reserve official Waller recently stated that a rate cut in December is reasonable, but this does not fully eliminate market doubts about future policy directions. Especially, the policy outlook for January 2026 remains highly uncertain, with each release of economic data and official statements potentially reshaping market expectations. From a practical perspective, changes in interest rates have a considerable impact on the valuation of Tech Stocks, as the future cash flows of high-growth companies are most sensitive to interest rate fluctuations. When market expectations for rate cuts weaken or the risk of rate hikes increases, Tech Stocks are the first to be affected. Additionally, changes in global price levels continue to influence asset pricing; even the rising trend of prices in the Philippines reflects that global inflation pressures have not fully subsided, which will undoubtedly complicate central bank policy decisions worldwide.

Capital Rotation and the Need for Diversified Allocation

A phenomenon worth noting is that capital is gradually shifting from a single Tech/AI sector to more diversified asset classes. Value stocks (such as energy and industrials), defensive sectors (healthcare, utilities), fixed income, and income-generating assets are gaining attention. Compared to alternative assets like gold, oil, and major currencies, the S&P 500 still faces considerable short-term volatility. However, this reallocation process reflects the market’s pursuit of a more balanced risk management framework.

Mid-term Goals and Outlook for 2026

Based on a comprehensive assessment of various factors, a conservative forecast places the midline target of the S&P 500 at around 7,000–7,500 points, with the index likely consolidating or gradually rising within this range. Achieving this target depends critically on three key factors: whether the Tech sector can validate its earnings prospects and maintain growth momentum; the final implementation of bond yields and Federal Reserve interest rate policies; and the flow of capital across different asset classes and changes in market risk appetite.

Some analytical institutions have used a “sentiment disparity model” to estimate that, under extremely optimistic assumptions (including policy easing, corporate earnings improvement, and positive market sentiment), the S&P 500 could rise to 25,000 points. However, such forecasts are often based on ideal scenarios, and the actual market complexity far exceeds these models.

Investment Strategies and Long-term Allocation Recommendations

Looking ahead to 2026, the S&P 500 is in a transitional period from being driven by a single Tech theme to being supported by a broad range of sectors. Investors should recognize that the validation process for overvalued sectors may take longer, emphasizing the importance of diversification. Specifically, moderate exposure to Tech Stocks can be maintained to capture long-term growth opportunities, but should be complemented with value stocks, energy sectors, defensive sectors, and fixed income assets to build a more resilient portfolio.

At the same time, close attention should be paid to the Federal Reserve’s policy direction in early 2026 and upcoming corporate earnings seasons, as these factors will directly determine whether Tech Stocks can continue to support the index’s upward movement. In this era of integration and revaluation, rational risk management and flexible allocation adjustments will be key to successful investing.