Possibly sharp correction in US markets biggest tail risk

AI MANIA SPELLS MARKET TURMOIL

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The biggest tail risk on the horizon is a possibly sharp correction in US stock markets.

The bull run in 2025 was fuelled mainly by AI-related stocks - the so-called Magnificent Seven - which alone account for more than 30 per cent of the S&P 500 and are richly priced, based on a speculative bet of massive future earnings.

AI-related capital expenditures, which amount to around US$500 billion since 2023, have overtaken consumer spending as the biggest source of US economic growth. But while AI has great promise, the mania may have gone too far. Several institutions, including the IMF, the Organisation for Economic Cooperation and Development, Bank of England, European Central Bank and Bank for International Settlements, as well as several investment professionals, have described the AI-related equity and capex surges as a bubble.