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Staying invested as the equity bull market matures

The recent correction reflects the challenges of a maturing bull market. We would remain invested and diversified, while using the correction to add quality.

12 November 2026

23 mins

by:

Sundeep Gantori Chief Investment Officer, Equities

Wealth Insights: Staying invested as the equity bull market matures

Entering a mid-cycle phase

The recent sharp sell-off in global equities has raised questions about the durability of the equity bull market. As of 5 November 2026, the Philadelphia Semiconductor Index had fallen more than 30% over the past month, as concerns over potential data centre restrictions added to uncertainty around AI spending and financing risks. The impact, however, has extended well beyond semiconductor stocks.

We have been arguing that equity markets are entering a mid-cycle phase, characterised by more moderate returns, higher volatility and shifting market leadership. In such an environment, investors typically become less focused on whether companies can beat earnings expectations and grow increasingly focused on the durability of earnings growth over subsequent periods. In other words, the hurdle for positive share-price reactions is shifting from simply delivering strong results to demonstrating that elevated growth rates can be sustained, even when earnings results beat expectations.

Previous mid-cycle transitions offer some useful parallels. Between January 2015 and January 2017, the S&P500 Index delivered an annualised total return of 8.3%, compared with 19.1% during the preceding six years. Political uncertainty increased following the 2014 US mid-term elections, while the smartphone and cloud investment cycles began to mature. Market leadership also evolved as investors focused increasingly on monetisation. Leading cloud platforms outperformed semiconductor companies during that period, illustrating how the beneficiaries of an innovation cycle can change.

Today, we see a similar shift in the AI debate, with greater scrutiny of cash generation and returns on infrastructure spending. While earnings remain robust, we expect earnings growth to normalise in 2027 and particularly in 2028. We favour staying invested, diversifying across sectors and regions and using the sell-off to selectively add quality stocks, with policy risks, AI cash flow and valuations shaping where we see opportunities.

The US mid-term elections and technology sell-off

The recent US mid-term election outcome reinforces these trends and adds policy uncertainty to the changing market environment. With the Democrats now set to take control of both chambers of Congress from the Republicans, fresh economic stimulus could become harder to pass. Early strength in clean energy and healthcare-related stocks reflects hopes for supportive policies, while concerns over potential state-level data centre moratoriums have weighed on semiconductors. However, the eventual measures and their impact remain uncertain.

For Big Tech, the implications are more mixed. High capital commitments were already putting pressure on free cash flow and increasing reliance on external financing before the elections. A more measured data centre buildout could ease near-term capital spending and improve free cash flow in projects where investment can be delayed. However, a slower buildout could also constrain cloud revenue growth, making the resilience of underlying demand and operating cash generation crucial.

In our view, the recent sell-off has improved the balance of risk and reward. Rising volatility, subdued reactions to earnings and the underperformance of concentrated market segments suggest that several risks may now be better reflected in prices. While policy uncertainty remains, we see increasing signs of a potential market bottom, supporting selective additions to quality stocks.

Investing in a mid-cycle equity market

Against this backdrop, we recommend remaining invested with a focus on quality and diversification. Within Big Tech, we favour companies with strong balance sheets that continue to generate positive free cash flow. As we continue to expect AI capital expenditure to remain elevated, these businesses should be better positioned to sustain investment and manage uncertainty without heavy dependence on external financing.

The sharp correction also creates opportunities in semiconductors. While we continue to remain selective, we increasingly favour semiconductor players supported by strong volume growth over those benefiting from pricing tailwinds, as supply shortages are expected to ease gradually.

The recent sell-off also supports our new opportunistic idea on US information technology (IT), with valuations now nearly two standard deviations below their five-year average. History offers some reassurance: following sharp quarterly declines in 2008, 2018 and 2022, US IT delivered an average return of 14.8% over the subsequent six months. With AI adoption also rising, we see a more attractive entry point for selectively adding exposure to quality technology stocks through US IT.

As the bull market matures, investors should continue to diversify across sectors and regions. Beyond technology, we favour the US healthcare, financial and materials sectors. Swiss equities also offer a potential defensive tilt, with exposure to established healthcare and consumer staples businesses. Together, these sector and regional allocations would broaden the source of portfolio earnings beyond AI and should help investors navigate higher volatility as market leadership broadens during the mid-cycle phase.

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