U.S. equities have entered 2026 with the same strong momentum that powered markets higher last year. However, analysts at Sevens Report cautioned that investors should not take the continuation of the rally for granted.
The firm pointed to a survey of 21 strategists conducted by Bloomberg, all of whom held bullish outlooks for stocks. Sevens described this level of consensus as a potential warning sign, noting that excessive agreement in financial markets often precedes periods of volatility.
Sevens identified three key developments that could put downward pressure on equities in the year ahead.
The first risk is a renewed surge in U.S. Treasury yields. The firm recalled that the last unexpected spike in yields, in 2022, pushed the S&P 500 into a deep bear market. According to Sevens, similar upward pressure could be building again due to the possible reversal of IEEPA-related tariffs and uncertainty surrounding President Donald Trump’s upcoming nomination for Federal Reserve chair.
Sevens warned that selecting a candidate seen as too closely aligned with the administration could unsettle bond markets. A sustained move in the 10-year Treasury yield above 4.50%, the firm said, would represent a clear headwind for stocks.
The second major threat is an abrupt slowdown in economic activity. The U.S. began 2026 with unemployment at a four-year high, alongside a labour market Sevens described as effectively “no-hire, no-fire.” If the unemployment rate were to climb to or above 5.0%, the firm warned that recession fears would resurface and likely trigger a decline in equity prices.
The third risk centers on a potential pullback driven by artificial intelligence. After nearly three years of AI-led gains in equities, Sevens said investors are increasingly demanding evidence of positive returns on the massive capital being deployed across the sector.
If AI investment begins to cool, the firm cautioned that the combination of slowing growth and what it described as “AI-bubble deflation” could create conditions for a meaningful downturn in stock markets.
