Bullish sentiment toward stocks is rampant in the US, as one Wall Street strategist after another raises their target for an S&P 500 Index that is repeatedly setting new records.
Yet as optimism about further gains has solidified into something resembling a consensus, even the most bullish are clear-eyed about a growing list of issues that could potentially stop the party. With valuations at among the richest levels of this century, the most commonly cited risks for a hard market landing include cracks emerging in the artificial-intelligence theme, percolating damage from President Donald Trump’s trade war, swelling government debt loads and a weakening labour market.
“All new highs are positive, except for the final one,” Sam Stovall, chief investment strategist at CFRA, said by phone. He does expect the rally to continue, partly because US stocks are hitting records at the same time as other developed equity markets, which has been a strong signal historically.
Many on Wall Street are treating these concerns like the risk factors in the prospectuses of the many IPOs hitting the market these days — they’re real and strategists and investors are aware of them, but they aren’t being scared away.
Strategists at Deutsche Bank, Barclays, Wells Fargo, US Bank and Yardeni Research all raised their price targets on the S&P 500 in the past week. Looking further out, Goldman Sachs and Morgan Stanley also published bullish outlooks for 2026 on expectations that Federal Reserve rate cuts expected to begin on Sept 17 could spur a further rally.
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It all comes as markets have been swept up in an “everything rally” for the past 12 weeks, according to Dennis DeBusschere, president and chief market strategist at 22V Research LLC. And that much bullishness itself may present its own risk. DeBusschere cautions that this type of wide-ranging rally is extremely uncommon — occurring just 1% of the time.
“It is atypical for internals to be risk-on at this rate in any economic backdrop,” he said in a note. Still, 22V Research sees the S&P 500 hitting 7,000 points by year end. The index closed at 6,584.29 on Friday and is up about 12% so far this year.
Below is a look at some of the issues that are keeping the bulls up at night, given their potential to flick the risk-off switch.
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Artificial Intelligence
For most of the last couple of years, investors have been focused on one simple risk when it comes to artificial intelligence: missing out on the massive upside the innovation offers to companies and their shareholders.
Yet after the hype around AI added trillions of dollars of market value to companies involved in the technology, some caution is brewing. Take Keith Lerner, chief investment officer and chief market strategist at Truist Advisory Services Inc. While he’s been bullish on the dramatic productivity boost that AI may unleash, he also has identified changes to the AI narrative as a potential risk to the market’s march higher.
“We’re still invested,” Lerner said, while adding that with expectations for the space sky-high, “we need to see the numbers come through.”
The surprise emergence of China’s DeepSeek as AI competition earlier this year as well as the trade fight between the US and China over the delivery of cutting-edge chips also has him a little spooked.
Like other investors, he’s also concerned about the market-concentration risk that the rise of AI has exacerbated. Tech stocks now account for about one-third of the S&P 500 — a larger weighting than 2022 when a selloff in the sector dragged the index into a bear market.
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“The risk is that the market can’t hold up without tech anymore,” said Jonathan Golub, chief equity strategist at Seaport Research Partners, who has a year-end target of 6,700 for the S&P 500, about 1.8% higher than its last close. “The market is now entirely dependent on the health of the tech sector.”
Earnings let downs
AI-fueled stock surges from the likes Oracle Corp and Broadcom Inc in recent weeks have introduced another risk: that investors paying up for future earnings will be let down when results don’t meet expectations.
Current valuations imply that massive earnings growth will continue in the coming quarters, according to Drew Pettit, US equity strategist at Citigroup Global Markets Inc. Citi sees the S&P 500 reaching 6,600 by year-end, near where it’s currently trading.
Indeed, excluding the market euphoria seen during the recovery from the Covid-19 pandemic, the S&P 500 is trading near its highest price-to-earnings ratio since 2002.
Stocks are trading as if the next three- to five-years' worth of earnings will not deviate from current expectations at all, according to Pettit.
“You’re just at a setup where you need beats and raises to keep trudging this thing forward,” he said by phone, noting that firms that miss expectations or cut their outlooks are being sold aggressively. “There’s no wiggle room.”
Companies that missed expectations in the second quarter were punished by investors with the sharpest selloffs in nearly three years, Bloomberg Intelligence data showed.
One threat to those lofty expectations is the potential that tariffs will have a delayed impact on earnings.
“There’s still a risk in terms of whether the impacts from tariffs have just taken longer to play through than we expected,” said Jill Carey Hall, US equity strategist at BofA Global Research, which has a year-end target of 6,300 for the S&P 500, about 4% below its current level.
Carey Hall said the bank is expecting tariffs to have a “mid-single digit” impact on corporate operating earnings, but she said there is a risk that the damage is larger than expected and hasn’t shown up yet in corporate earnings.
Political surprises
While pressure on profit margins from tariffs is one risk, even a Supreme Court ruling that eliminates them and requires the government to refund the levies presents its own problems.
“What could trigger something deeper than a run-of-the-mill or garden variety bear market? Debt levels continue to rise and the tariffs need to be given back,” CFRA’s Stovall said, adding that such an event would immediately push interest rates higher.
Weakening labour market
While the trade war and AI present unique new risks and opportunities for the stock market, one growing concern is all too familiar: a deteriorating labour market. Last week’s negative jobs revision showed a whopping 911,000 fewer people were working than the Bureau of Labor Statistics previously thought. Weekly jobless claims in the US also hit their highest level since 2021.
“I don’t know how, in that kind of environment, you should expect the kind of double-digit earnings growth that the markets are pricing in,” said Neil Dutta, partner and head of US economic research at Renaissance Macro Research LLC.
Jobs data has so far spurred markets higher, with the S&P 500 hitting records when both data points were released as investors focused on the silver lining: That a weakening labour market would force the Fed to cut rates. But Dutta said the danger hiding in plain sight is that fewer workers in the US, drawing fewer salaries, translates into lower wage growth over the long term and weaker consumer spending.
“It’s like a ‘heads I win, tails you lose’ kind of stock market,” Dutta said, noting that bulls are looking for positives in every data point. “That kind of momentum is difficult to break but the risk is that once it cracks, it can kind of get away from you quickly.”
Seaport’s Golub said his S&P 500 target would be higher if not for the cracks in the labour market. While the unemployment rate of 4.3% remains low, he said he is concerned that the number of people getting hired “looks like a straight downward arrow” when it’s plotted out.
“There could be a problem,” Golub said. “But it’s not showing up yet and I don’t want to panic on it.”
