Mike Wilson, Morgan Stanley’s Chief Investment Officer (CIO) and chief US equity strategist, warns of one factor that could have a bearish impact on stocks.
In a new CNBC interview, Wilson say his biggest concern for the stock market right now is the increased volatility of bond prices.
“The bigger problem, the bigger risk, if there is one right now, would be that bond volatility would increase again, which is probably more a reflection of the conflict in Iran or some other external event. And oil, private credit, you know, are starting to seep into the negative side. Something like that would, I think, be a lot more of a headwind for equity multiples than just an interest rate level.”
Wilson says the rise in bond volatility worries him because it reduces market liquidity.
“And that’s really now a bigger driver for asset prices if we want to continue [the yield on the 10-year treasury bond climbing above] 4.50%.”
The yield on ten-year government bonds is currently 4.39%.
According to Wilson, the current stock market rally, which saw the S&P 500 index reach a record high in April despite geopolitical unrest, is being driven by strong corporate earnings growth.
“The broadening of the earnings story has actually been very impressive, something that people have underestimated.
So I’ll give you an example. The average stock within the Russell 3000 [index]…So this looks like the 1,500th largest company in the broader market is now growing its profits at almost 14% year over year. So that broader story, I think, is still underappreciated.”
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