"Others' greed makes me fearful." As Wall Street is collectively bullish, experts are warning against the trend: US stocks will experience a correction of over 10%.

Seeking Alpha contributor and professional investor Dividend Seeker predicts that there will be a 10% or greater pullback in the US large-cap stocks, especially the S&P 500 index, in early or mid-2026. The bullish sentiment in the market and the high valuation of the S&P 500 index relative to other global indexes have led to a cautious outlook on the US stock market. However, the analyst believes that the potential weakness in the US stock market is a buying opportunity and is adjusting their portfolio accordingly. Additionally, in preparation for this pullback, the analyst is inclined to invest in UK and European stocks, gold, and bonds. Why will the US stock market decline? Reason One: Wall Street is Bullish The first reason may seem counterintuitive as it focuses on the optimism of market analysts and forecasters. You may wonder why this is a "bad thing" and how it contributes to the expectation of a pullback. The answer is simple: following the herd mentality is not advisable, and often requires contrarian thinking when market sentiment is euphoric - like "when others are greedy, be fearful." While this is not always the case, it should be easy to understand its importance in the current environment. Given the strong performance of the US stock market in the second half of the year, analysts' confidence in their 2026 forecasts is unsettling. Data shows that analysts from all major banks are predicting a rise in the market next year, with some forecasts indicating a strong increase. Dividend Seeker states that what goes contrary to their view is not just that "people think the market will rise," but this prevalent groupthink. Additionally, professional analysts' forecasts tend to be passive rather than proactive, and their judgments are often slow. Looking back at 2025, we see that analysts' forecasts for the future were more accurate in line with the current situation. That is, when the stock market goes up, their forecasts for the future rise as well. Conversely, after experiencing a significant pullback in the middle of the year, their forecasts dropped, only to soar again after the rebound was established. When analysts predict the market outlook at the end of the year, they are often influenced by recent market trends. The analyst believes that such predictions hold little value - in fact, they are superficial. Therefore, when they all predict a strong growth in the market for 2026, it raises doubts. Reason Two: S&P 500 Index valuation is significantly higher than similar indexes The second reason is simple - it boils down to valuation. More accurately, it is relative valuation. In the long term, non-US developed markets play a crucial role. Both the Canadian and European stock markets brought in excess returns in 2025. This means that despite the strong rise of the S&P 500 index, which saw double-digit increases, it pales in comparison to the over 30% increase seen in Atlantic China Welding Consumables, Inc. and Canada. This is indeed surprising. In this sense, buying US stocks in the future might actually be more valuable. If they underperformed other stocks in 2025, could there be a rebound in 2026? However, the flaw in this logic lies in the fact that even with the potential for higher-than-average returns for European and UK stocks in 2025, their relative valuations are still low. The S&P 500 index itself has seen a significant increase, partly due to its price-to-earnings expansion. Therefore, compared to peers, the S&P 500 index's valuation at the beginning of the year was higher, and its momentum weaker. Dividend Seeker believes this robustly demonstrates the need to continue holding non-US stocks - UK and European stocks' pricing is particularly attractive, and holding these large-cap stocks can bring in additional returns. Additionally, the analyst believes that the depreciation of the US dollar is almost certain, meaning they will continue to hedge the risk of US dollar devaluation by investing in non-US stocks in 2026. Dividend Seeker holds SPDR Euro Stoxx 50 ETF, iShares MSCI UK ETF, iShares International Equity ETF, and iShares MSCI Canada ETF. Reason Three: Midterm election years tend to have higher volatility 2026 is a midterm election year in the US. Despite midterm elections occurring every two years, on the surface, this may not seem like a particularly notable event. However, considering the geopolitical and trade turmoil experienced in 2025, Dividend Seeker believes that the coming year will be more unpredictable than usual. This assumption is not unfounded. Midterm election years typically have higher market volatility. However, this does not necessarily mean that there will be a decline during midterm election years - quite the opposite. The S&P 500 index tends to rise in most years. However, there are fluctuations during the rise, and the magnitude of these fluctuations tends to be greater in midterm election years. This means that the average pullback or correction in a midterm election year may be greater. The good news is that the subsequent upward trend is often higher during this time. This is another reason why Dividend Seeker is confident in preparing for the upcoming pullback - because the following trends often have significant fluctuations and substantial returns. However, considering that the average pullback around the middle of the year is about 20%, the analyst wants to be prepared for a decline. Investment advice for dealing with US stock market volatility Dividend Seeker suggests that retail investors can use some tried and tested strategies to mitigate stock market fluctuations. Firstly, gold is undoubtedly the most important asset. This year has been a barometer for gold, and despite its seemingly high price, trade and political uncertainties, relaxed fiscal policies of developed market governments, and rising global debt levels continue to drive gold prices up. These factors weaken confidence in fiat currencies and push various precious metals to unprecedented price hikes. Just flipping to the "January" page will not change the current market environment. Gold is a tried and tested safe-haven asset that the analyst believes will still have a place in their portfolio, especially in anticipation of further rate cuts by the Federal Reserve. The bond market also faces favorable factors in the new year. While interest rates have declined, yields are still high, providing investors with an opportunity to lock in these income streams before further yield reductions. Dividend Seeker concludes that if worried about stock market volatility, then allocating some funds here seems like a wise choice. Bonds are typically negatively correlated with the S&P 500 index, making it a very basic investment approach. The third preparedness method is to invest in stocks from non-US developed countries. While these stocks may also decline if the S&P 500 index experiences a significant pullback, their value remains significant, and the higher yields provided by these indexes can offset the impact of price declines. Therefore, I believe that in the coming year, in addition to bonds and gold, increasing holdings in these stocks would also be a wise move. Conclusion Dividend Seeker believes that the S&P 500 index is highly likely to experience a substantial decline, and it is important to be prepared now as accurately timing the decline is almost impossible. The analyst believes that the high valuation, market volatility specific to midterm election years, and herd mentality all indicate that the US stock market might be nearing its peak. Based on this view, Dividend Seeker recommends investing in more innovative investment areas such as gold, non-US stocks, and municipal bonds. The analyst believes that this will help control the losses from the upcoming stock market pullback and, more accurately, benefit from it.