3 events that could make markets decline in 2026

Investing.com -- Stocks have entered 2026 with the same momentum that carried markets through last year, but Sevens Report warned that investors should not assume the rally will continue indefinitely.

Citing unanimous bullish forecasts from 21 strategists surveyed by Bloomberg, Sevens said such agreement “struck us as a potential red flag,” arguing that “too much agreement on anything in markets is often a dangerous proposition.”

Sevens outlined three developments that could push stocks lower.

The first is a sharp rise in Treasury yields. Sevens noted that the last unexpected surge in yields, in 2022, sent the S&P 500 “into a steep bear market.”

The firm warned that upward pressure may be building again, driven by the potential reversal of IEEPA tariffs and uncertainty over President Trump’s upcoming Fed chair nomination.

It cautioned that Trump is “playing with fire” by considering a candidate viewed as overly influenced by the administration. A sustained move in the 10-year yield “above 4.50%” would be a “direct headwind on stocks,” Sevens said.

The second risk is a sudden economic slowdown. The U.S. entered 2026 with unemployment at a four-year high and a labour market that Sevens described as “no-hire/no-fire.”

It warned that if the jobless rate rises “to and through 5.0%,” fears of a downturn will return and “that would absolutely cause stocks to drop.”

The third risk is an AI-driven pullback. After nearly three years of powering equity gains, Sevens said investors are now demanding proof of “positive ROI” on massive AI spending.

If AI investment cools, the firm cautioned, the combination of “AI-bubble deflation” and slower growth would be “a recipe for a material decline in stocks.”

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