Tom Essaye: AI Stocks Create Major Risk for S&P 500

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Valuation gap suggests index could fall 20% to align with the market

S&P 500 Heavily Reliant on AI Stocks

The S&P 500’s heavy reliance on AI-linked mega-cap tech stocks is creating a significant risk for investors, said Tom Essaye, founder of Sevens Report Research and former Merrill Lynch trader.

Essaye pointed to a valuation gap of nearly five full points between the SPDR S&P 500 ETF Trust (SPY) and the Invesco S&P 500 Equal Weight ETF (RSP). To trade in line with the equal-weight index, the S&P 500 would need to decline by almost 1,500 points, he noted.

The disparity is being driven by the “magnificent seven” and AI-related names. Essaye warned that if enthusiasm for AI weakens—whether from reduced capex or slower adoption—the S&P 500 could drop more than 20% before valuations align.

He stressed that he is not predicting such a downturn but said the correlation between AI sentiment and the S&P 500 is “too strong to ignore.”

Also, click here to view the full article on finnewsnetwork.com.au published on September 25th, 2025. However, to see the Sevens Report’s full comments on the current market environment sign up here.

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Sevens Report: Q1 Stock Rally Shows Classic Dow Theory ‘Bull Trap’

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Transports’ weakness undermines Industrials’ record highs

Decoding Modern Bull Traps: A Dow Theory Perspective on Market Sentiment and False Signals

The Sevens Report said the Dow’s record-setting first-quarter rally fits the mold of a classic “bull trap” under Dow Theory. While the Dow Jones Industrial Average surged to new highs, the Dow Jones Transportation Average remained negative year-to-date—a divergence Charles Dow viewed as a warning of waning economic momentum.

The lack of confirmation from transports, which track logistics and shipping demand, suggests that market optimism may be misplaced. Sevens cautioned that without both averages advancing in tandem, the rally risks unraveling.

Also, click here to view the full article on Ainvest.com published on September 19th, 2025. However, to see the Sevens Report’s full comments on the current market environment sign up here.

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Sevens Report Flags ‘Bull Trap’ in Stocks Under Dow Theory

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Transports’ weakness signals risk despite record highs

Charles Dow would describe this market as a ’bull trap’ says this analyst

The Sevens Report warned Friday that the U.S. stock rally fits the definition of a “bull trap” under Dow Theory. While the Dow Industrials have hit new highs, the Dow Transports remain negative year-to-date, flashing a bearish divergence.

The note cited two key principles: Confirmation and Trend Reversals. Both indexes must rise together to confirm expansion, but transports’ weakness suggests pressure in travel, logistics, and freight.

Sevens emphasized that despite four of five major equity benchmarks hitting records, Dow Theory would still label the advance a technical bull trap.

Also, click here to view the full investing.com article on Yahoo Finance published on September 19th, 2025. However, to see the Sevens Report’s full comments on the current market environment sign up here.

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Sevens Report’s Tyler Richey Quoted in AInvest.com

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Dow Theory’s warning sign continues to flash

FedEx Earnings to Provide Clues on Stock Market Rally’s Fate

While the Dow Theory’s warning sign continues to flash, some strategists argue that it has little merit in the digital age, missing out on the significant role of vertically integrated retailers like Amazon and Walmart that handle their own shipping and delivery. Nevertheless, the Sevens Report’s Tyler Richey suggests that the Dow Theory should be used in conjunction with other indicators to get a full picture of the economy.

Also, click here to view the full article on Ainvest.com published on September 18th, 2025. However, to see the Sevens Report’s full comments on the current market environment sign up here.

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Sevens Report Weighs on AI Trade as Alphabet Hits $3 Trillion Milestone

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Essaye flags next Big Tech contender for record valuation

Google hits $3T market cap. This Big Tech name could be next.

Sevens Report Research Founder Tom Essaye joins Opening Bid to discuss the Google parent company’s recent gains and what it signals about the artificial intelligence (AI) trade. He also shares another Big Tech name that he thinks could be the next to hit $3 trillion.

Also, click here to view the full video on Yahoo Finance published on September 16th, 2025. However, to see the Sevens Report’s full comments on the current market environment sign up here.

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Sevens Report: 10-Year Yield Drop Below 4% Could Break ‘Bad News Is Good’ Trade

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Tom Essaye warns a fast move lower would signal economic anxiety, not relief

A sudden move below 4% on 10-year Treasury note yield could kill the ‘bad news is good’ market vibe

Lower yields can be a positive for stocks, foremost by making equities more attractive in comparison. But context matters, and a sudden drop could serve to unnerve investors who have largely continued to view negative economic news as a positive because it reinforces expectations for the Federal Reserve to resume cutting interest rates later this month, said Tom Essaye, founder of Sevens Report Research, in a note.

“The 4.00% level on the 10-year yield is important and if we move quickly through that level, it will signal more economic anxiety and that will further undercut the ‘bad-is-good’ narrative around weak data and Fed rate cuts (point being, if the 10-year yield falls quickly through 4.00% and heads lower, bad data will be bad for stocks because it’ll signal rising chances of an economic slowdown),” he wrote.

Also, click here to view the full article published in MarketWatch on September 9th, 2025. However, to see the Sevens Report’s full comments on the current market environment sign up here.

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Sevens Report: ‘Bearish Wheels in Motion’ for Oil as Supply Rises, Demand Wanes

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Tyler Richey says crude risks a deeper slide with $61.50 key support level

‘Bearish wheels are in motion’ for oil after a three-session climb

Crude oil is on track for its first loss in four sessions as supply builds and demand softens, according to Tyler Richey, co-editor at Sevens Report Research.

“OPEC+ is re-engaging in a fight to reclaim market share from non-member producers, while demand faces pressure from rising stagflation risks,” Richey said. He noted the dynamic is “straight out of the economic 101 textbook” and has set the “bearish wheels in motion” for crude.

On the charts, $61.50 a barrel is the key near-term support for WTI. A break below that could accelerate losses toward the $57–$58 range, Richey warned. October WTI recently traded at $62.49, down 1.9% on Thursday.

Also, click here to view the full article published in MarketWatch on September 11th, 2025. However, to see the Sevens Report’s full comments on the current market environment sign up here.

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Sevens Report: U.S. Labor Market Stable, But Cracks Emerging

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Thresholds in claims and unemployment could trigger sharp equity declines

What does a soft jobs market mean for markets?

Sevens Report said U.S. labor conditions remain broadly stable despite recent weak data, citing jobless claims below 250,000, continued positive payrolls, and JOLTS near 7 million.

The firm warned, however, that momentum is fading: hiring is slowing even as layoffs remain limited. Key thresholds include jobless claims above 260,000, a four-week average above 300,000, unemployment over 4.5%, and JOLTS falling under 6.5 million. Each would signal real deterioration.

On market impact, Sevens cautioned that a sharp labor downturn could drive a 15%–30% equity drop, with the S&P 500 potentially sliding 500–700 points initially. Defensive sectors such as staples, utilities, and healthcare would likely outperform, alongside lower-volatility ETFs and mega-cap tech if the AI trade holds.

“Bottom line, the labor market is not bad; however, it is losing momentum and this is something we need to watch carefully,” the report said.

Also, click here to view the full article published in Investing.com on September 8th, 2025. However, to see the Sevens Report’s full comments on the current market environment sign up here.

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Tom Essaye: Jobs Report Needs Stronger Beat to Derail Fed Rate-Cut Hopes

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Different payroll scenarios could spark sharp swings in stocks and yields

It will take a doozy of a jobs report to derail investor expectations for a September rate cut

Tom Essaye, founder of Sevens Report Research, said it would take a much stronger payrolls beat to derail rate-cut expectations and pressure equities.

He outlined several scenarios:

  • Best case: Payrolls rise around 150,000 with steady unemployment and tame wage growth. This would ease growth worries while keeping a September cut in play.

  • Hot surprise: Payrolls of 250,000+ and unemployment at 4% or below could spark a 1%+ S&P 500 drop and a sharp rise in 10-year Treasury yields.

  • Weak reading: Payrolls below 25,000 with unemployment at 4.4% could trigger a short-term rally on “bad-is-good” rate-cut optimism, but Essaye warned it would ultimately weigh on stocks as growth fears mount.

“A bounce in the S&P 500 initially shouldn’t be a total surprise, but beyond the short term this outcome would not be positive,” Essaye wrote.

Also, click here to view the full Market Watch article published in Morningstar on September 4th, 2025. However, to see the Sevens Report’s full comments on the current market environment sign up here.

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Sevens Report’s Tyler Richey: AI Stock Stumble Signals Bearish Exhaustion

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Mega-cap tech weakness poses broader risks to equity markets

AI stock boom starts to stumble as investors increase bets against sector

A recent stumble in AI-related stocks “highlights some degree of bearish exhaustion in the underlying AI narrative,” said Tyler Richey, co-editor at Sevens Report Research.

“There are signs the market is turning on AI stocks,” Richey warned, adding that a meaningful and lasting rethinking by investors could pose significant risks for the broader equity market. The concern stems from the heavy concentration of mega-cap tech stocks such as NVIDIA, Microsoft, and Meta within the S&P 500 and other major indexes.

“This could be extremely detrimental to even the most vanilla index strategies,” Richey said. With a record amount of U.S. personal wealth tied to equities, a major AI-driven drawdown could create a negative wealth effect, fueling a bear market in stocks and risk assets while pushing investors toward safe havens amid a weakening economy.

Also, click here to view the full article published in S&P Global on September 3rd, 2025. However, to see the Sevens Report’s full comments on the current market environment sign up here.

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