Forget AI: the stock market has a new risk to worry about
The stock market has spent 2026 climbing a wall of worry, but the latest Bank of America Global Fund Manager Survey suggests the wall has changed shape. AI isn’t the biggest risk any longer.
Instead, rising bond yields are now the biggest tail risk for 33% of managers, up from 27% in August. And it’s easy to see why.
Bond yields are rising
The US 10-year Treasury yield reached 5.04% this week. That’s its highest level since 2007, which is when savers were queuing outside Northern Rock.
In the UK, Liz Truss took to X to point out that gilt yields were close to 6% – higher than they were during her era. The best reply I saw said only that 49 days doesn’t constitute an era!
Rising yields are a threat to the stock market for two reasons:
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If government bonds offer higher yields, investors demand more from equities. And share prices fall until they do.
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Higher yields mean borrowing costs go up. That limits spending, which weighs on corporate sales and profits.
AI is actually decent example in relation to borrowing costs. AI has been driving both the US economy and the stock market, but a lot of data centre projects are being funded by debt.
Investments that make sense when rates are low aren’t always attractive when debt becomes more expensive. For comparison, see BP in 2022-23.
The stock market therefore faces a dual threat. Pressure on multiples and earnings at once could put real stress on share prices.
Managing the risk
One response is to hedge — owning something that does better as rates rise. Insurers are the obvious candidate: rising yields mean a chance to invest at higher rates than before.
I’m not sure hedging is a game long-term investors should play or need to play. But it does make this an interesting moment to think about quality in insurance.
Admiral is one example from the FTSE 100 that I own in my portfolio. There are also, however, some very attractive names elsewhere to consider.
Chubb (NYSE:CB) is one Berkshire Hathaway has been buying since early 2024. Warren Buffett’s firm now owns roughly 9.3% of the company — a top-10 holding — and it’s easy to see why.
That combined ratio means Chubb keeps roughly 16 cents of every premium dollar it receives – well above the market average. It’s what funds the portfolio, which is now reinvested at 5%.
What sets the company apart is a willingness to walk away. CEO Evan Greenberg’s line is that Chubb “will not underwrite knowingly at a loss”, and it’s been backing off in soft markets recently.
