Investing.com — A note from Sevens Research on Tuesday highlighted the importance of distinguishing between market volatility that merely causes a pullback and events that could end the rally altogether.
Sevens emphasized that 2025 will likely see increased turbulence due to “unorthodox policies from the incoming administration,” shifts in Treasury yields and the U.S. dollar, and ongoing geopolitical and economic uncertainties.
Despite the expected choppiness, Sevens Research maintains that the market outlook remains broadly positive.
The firm categorizes potential volatility sources and assigns a verdict to each based on its likely market impact. For example, rhetoric from the Trump administration may unsettle markets but is largely seen as “more bark than bite.”
Sevens Research believes such headlines will trigger pullbacks rather than sustained downturns, as “very little in government can be done without a review, check, or challenge.”
Similarly, rising yields and a stronger dollar, while problematic for stock valuations, are unlikely to end the rally unless there is a “disorderly spike” that pushes benchmarks like the 10-year Treasury yield significantly higher.
Sevens adds that trade threats, another source of volatility, would likely only escalate into a rally killer if wide-ranging tariffs are implemented with material economic consequences.
Conversely, certain factors are seen as posing a more significant threat to market stability. Sevens Research notes that any doubts about economic growth could be a “major problem,” as the Fed would struggle to cut rates fast enough to prevent a slowdown.
Additionally, if the Fed pauses or reverses its rate-cut cycle, it would “invalidate the 21x-22x multiple” underpinning current valuations, constituting a potential rally killer.
The analysts conclude: “Headline-driven volatility will rise and being able to determine what negative headlines are likely just causing a pullback and what negative news constitutes a real threat to the rally will be a difference between recognizing a potential buying opportunity in an upwards–trending market and de-risking into a potentially decidedly negative event.”