Mike Wilson, Morgan Stanley’s chief investment officer and chief U.S. equity strategist, warns of one factor that could have a bearish impact on stocks.
In a new interview with CNBC, Wilson said He says His biggest concern for the stock market right now is increased volatility in bond prices.
“The bigger issue, the bigger risk, if it exists now, would be bond volatility if it rebounds again, which is probably a reflection of the conflict in Iran or some other external event. And oil and private credit, you know, are starting to leak to the downside. I think something like that would be more of a headwind to equity multiples than just the level of interest rates.”
Wilson says rising bond volatility worries him because it reduces market liquidity.
“And that’s really a bigger driver of asset prices now if we want to get (the 10-year Treasury yield to above) 4.50%.”
The yield on 10-year Treasury bonds is currently 4.39%.
According to Wilson, the current rally in stocks, which saw the S&P 500 reach an all-time high in April despite geopolitical turmoil, is being driven by strong growth in corporate earnings.
“The breadth of the earnings story was actually quite impressive, which is something people underestimated.
So I’ll give you an example. The average stock within the Russell 3000 index…so this 1,500th largest company in the broader market is now yielding close to 14% year over year. So, I think this expanded story is still underappreciated.
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