UBS chief strategist Bhanu Baweja warns the US consumer slowdown threatens equity markets despite strong first-quarter earnings driven by artificial intelligence. The strategist pointed to real disposable income growth nearing zero and fading fiscal support as key risks to the ongoing stock rally. This potential consumer weakness could undermine recent market gains driven by AI enthusiasm.

Long-end bond yields have surged dramatically, with the 30-year Treasury yield reaching 2007 levels. Baweja clarified this rise reflects strong nominal growth rather than inflation concerns, with real yields driving the backup at the long end of the curve. This yield movement indicates market pricing in substantial economic expansion, creating headwinds for stock valuations.

The combination of weakening consumer spending and rising long-term yields presents a challenging environment for investors. While AI-driven earnings have supported stocks so far, the fundamental economic shift could force portfolio reallocations. Market participants should brace for potential volatility as these opposing forces—AI enthusiasm versus consumer weakness—play out in coming months.