The higher the "wall of worry" that US stocks face, the faster they seem to climb, with Monday's close just a step away from a record high.

However, in the view of closely watched veteran investor Jim Paulsen, the cumulative pressure from oil prices sitting at $100 per barrel, Treasury yields reaching 5%, and a strengthening dollar has not yet truly delivered a significant blow to the market.

Paulsen noted that in the past, when these three factors simultaneously weighed on the S&P 500 Index, the index fell by as much as 15% over the following three to five months.

If this scenario repeats, the S&P 500 Index would post its first annual decline this year since 2022. That would deal a blow to bulls betting on the continuation of the stock market's record rally.

Paulsen believes that although strong corporate earnings and enthusiasm surrounding artificial intelligence are still supporting the S&P 500 Index at current levels, the negative effects of rising yields, a stronger dollar, and higher oil prices will soon become apparent.

Paulsen said: "We are going to get a significant reality check. Gravity may soon prove once again that it has never failed the economy and the stock market."

Paulsen is the author of the "Paulsen Perspectives" newsletter. He found that the S&P 500 Index has a strong correlation with a basket of indicators measuring "economic and policy stress."

In this gauge, the 10-year US Treasury yield carries a 50% weight, while the dollar and crude oil prices each account for 25%.

In the past, when this policy stress indicator rose to its current high level, the S&P 500 subsequently fell by 20% to 25%.

However, Paulsen noted that 7 of the S&P 500's 11 sectors have been range-bound for an extended period, so these sectors may not experience such a sharp decline.

But he still expects the technology sector could fall 20%. He called these sectors the "moderate Magnificent Seven," saying they "may be able to save us."