The party is getting loud. Too loud. For three consecutive years, the S&P 500 has defied the gravity of high interest rates and geopolitical fracturing to post double-digit gains. Wall Street has moved beyond mere optimism into a state of structural delusion. BlackRock recently broke the silence by asking what exactly could challenge this pro-risk view. The answer is not a single event but a systemic evaporation of the liquidity that fueled this run.
The Anatomy of a Three Year Streak
Capital is a coward. It only stays where it feels safe, yet for thirty-six months, it has sprinted into equities with reckless abandon. Between January 2023 and December 2025, the market absorbed shocks that should have triggered a secular bear cycle. We saw the regional banking crisis, the highest terminal rates in two decades, and a total reconfiguration of global supply chains. Instead of a correction, we saw a melt-up. This was driven primarily by the concentration of capital into a handful of generative intelligence and energy infrastructure plays. According to Bloomberg market data, the top seven stocks contributed over 60 percent of the total index returns during this period. This is not a broad-based recovery. It is a narrow ledge. When the leaders stumble, there is no safety net beneath them.
Three Years of Double-Digit S&P 500 Returns
The Hidden Leverage in Private Credit
Shadow banking is the new systemic risk. As traditional banks tightened their belts under Basel III endgame rules, private credit funds stepped into the void. These opaque vehicles now hold trillions in mid-market debt that has never been stress-tested in a prolonged high-rate environment. The latest reports from Reuters suggest that default rates in non-bank lending are beginning to creep upward. The consensus view ignores this because it does not appear on public exchange tickers. However, the correlation between private distress and public equity sell-offs is historically absolute. If the private credit bubble pops, the forced liquidations will hit the S&P 500 with the force of a freight train. Investors are currently pricing in a soft landing that has already been overshot.
Key Macroeconomic Risk Indicators February 2026
| Indicator | Current Level | 12-Month Change | Risk Status |
|---|---|---|---|
| 10-Year Treasury Yield | 4.82% | +45 bps | High |
| High-Yield Spread | 310 bps | -15 bps | Complacent |
| Core CPI (YoY) | 3.4% | +0.2% | Sticky |
| Household Debt-to-Income | 102% | +4% | Warning |
The Valuation Trap
Price is what you pay, but value is what you actually get. Currently, the forward price-to-earnings ratio for the S&P 500 sits at a level that assumes flawless execution of corporate earnings through the end of the decade. Any slight miss in productivity gains from automated systems will trigger a massive re-rating. We are seeing early signs of this in the SEC filings of major tech firms, where capital expenditure is rising faster than revenue growth. This margin compression is the silent killer of bull markets. The crowd is betting on a continuation of the 2023-2025 streak, but the math is becoming impossible to sustain. The cost of capital is no longer zero, and the era of free money is a distant memory. Risk is being mispriced because the market has forgotten what a real downturn feels like.
Watch the March 18 FOMC dot plot. If the Federal Reserve signals a ‘higher for longer’ stance into the third quarter, the pro-risk consensus will evaporate overnight. The specific data point to monitor is the 4.9 percent handle on the 10-year yield. If we cross that threshold, the three-year streak ends.
