"The global asset pricing anchor" surges, Morgan Stanley warns that U.S. stocks are about to face a difficult time
Morgan Stanley warns that the U.S. stock market may face challenges in the next six months due to rising U.S. Treasury yields and inflation concerns. Strategist Michael Wilson pointed out that the 10-year Treasury yield has exceeded 4.5%, leading to a significantly negative correlation between the S&P 500 index and bond yields. Although the stock market is expected to be supported by policies such as tax cuts in 2025, the current market conditions and the strength of the dollar may put pressure on international business companies
The Zhitong Finance APP noted that Morgan Stanley strategist Michael Wilson stated that due to the surge in U.S. Treasury yields and inflation concerns leading to a rise in the dollar, the U.S. stock market may face a difficult period in the next six months.
In a report, Wilson warned that as the 10-year U.S. Treasury yield climbs above 4.5%, the correlation between the S&P 500 index and bond yields has become "significantly negative." The 30-year Treasury yield reached its highest level since the end of 2023 on Monday.
Wilson indicated that the current level of the dollar could put pressure on companies with significant international business, and due to the already poor market breadth, this could cause broader damage to the stock market in the first half of this year.
The strategist wrote, "We believe that 2025 may be divided into two halves," suggesting that potential market-friendly policies such as tax cuts could support the stock market later this year.
The team announced a 12-month target price for the S&P 500 index of 6,500 points in November, implying that the index would rise about 9% from Friday's closing price.
Concerns about economic growth and a more hawkish outlook for the Federal Reserve than expected have weakened the U.S. stock market's rally in December. Since October 2022, technology stocks have been the main driver of the S&P 500 index's gains, but they have recently been among the worst performers.
Wilson was once one of Wall Street's biggest bears, but his outlook on the stock market has become more optimistic as of mid-2024. While he expects the S&P 500 index to rise this year, he warned that the current gains are not substantial enough.
Wilson stated that the gap between the benchmark index and its individual components, measured by the 200-day moving average, has historically been significant.
The strategist wrote, "This disparity could narrow in two ways—either breadth improves, or the S&P 500 index gets closer to its 200-day moving average." "The first scenario may depend on falling interest rates, a weaker dollar, clarity in tariff policies/cabinet confirmations, and stronger earnings revisions."