Morgan Stanley strategist Michael Wilson stated that due to the surge in USA Treasury yields and inflation concerns leading to the rise of the dollar, the USA stock market may face a difficult period in the next six months.

Wilson warned in a report that as the 10-year USA Treasury yield rises 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 stated that the current level of the dollar may 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', with potential policies such as tax cuts supporting the stock market later this year.

The team announced the 12-month target price for the S&P 500 Index in November, which is set at 6,500 points, indicating that the Index is expected to rise about 9% from Friday's closing price.

Due to concerns about economic growth and a more hawkish outlook for the Federal Reserve's policies than expected, the USA stock market weakened in its rally in December last year. 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-performing stocks.

Wilson was once one of Wall Street's biggest bears, until his outlook on the stock market became more optimistic in mid-2024. While he expects the S&P 500 Index to rise this year, he warns that the current gains are not substantial enough.

Wilson stated that the gap between the benchmark index and its individual components, when measured by the 200-day moving average, has been historically wide.

The strategist wrote: "This discrepancy may narrow in two ways - either breadth improves or the S&P 500 Index moves closer to its own 200-day moving average." "The first scenario may depend on a decline in interest rates, a weaker dollar, clarity in tariff policies/cabinet confirmations, and stronger earnings revisions."

Editor/lambor