Morgan Stanley’s chief investment officer (CIO) and chief US equity strategist, Mike Wilson, is warning of one factor that could have a bearish impact on stocks.
In a new CNBC interview, Wilson says his biggest worry for the stock market currently is increased volatility in bond prices.
“The bigger issue, the bigger risk, if there is one right now, would be a bond volatility were to pick up again, which is probably more a reflection of the conflict in Iran or some other external event. And oil, private credit, you know, start percolating in the negative side. Something like that, I think, would be much more of a headwind for equity multiples than just a level of rates.”
Wilson says a rise in bond volatility worries him because it reduces market liquidity.
“And that really is a bigger driver for asset prices now if we’re to go through [the yield on the 10-year treasury bond climbing above] 4.50%.”
The yield on the 10-year Treasury bond is currently at 4.39%.
According to Wilson, the current rally in stocks, which saw the S&P 500 index hit an all-time high in April despite geopolitical turmoil, is driven by a strong growth in corporate earnings.
“The broadening of the earnings story has actually been very impressive, something that people have underestimated.
So I’ll give you an example. The median stock within the Russell 3000 [index]… So this is like the 1500th-largest company in the broader market is now growing earnings close to 14% year-over-year. So that broadening story, I think, is still underappreciated.”
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