Wilson表示，Morgan Stanley strategists pointed out that the surge in U.S. bond yields and the strengthening of the dollar will impact U.S. stocks, and 2025 will be a year of "ice and fire."
Analysts at Morgan Stanley have indicated that due to concerns about inflation leading to a surge in USA Treasury yields and a strengthening dollar, the USA stock market may face a challenging situation in the next six months.
Morgan Stanley strategist Michael Wilson warned in a report that as the 10-year USA Treasury yield climbs above 4.5%, the correlation between the S&P 500 Index and USA Treasury yields has shifted to a "decisive negative correlation." The 30-year USA Treasury yield reached its highest level since the end of 2023 on Monday.
Wilson stated that the dollar is currently approaching a level that may put pressure on companies with significant international exposure, and given that market breadth has already weakened, this could further harm the stock market in the first half of this year.
The strategist wrote, "We believe that 2025 could be a year of 'ice and fire'," suggesting that market-friendly policies (such as potential tax cuts) might support the stock market later this year.
The team projected in November of last year that the S&P 500 Index would reach a Target Price of 6,500 points within the next 12 months, implying that the index would rise about 9% from last Friday's closing price.
Due to concerns about economic growth and a more hawkish policy outlook from the Federal Reserve than expected, the USA stock market stagnated in December, with the Technology Sector being one of the worst-performing sectors, despite being the "decisive force" behind the S&P 500 Index rally since October 2022.
Wilson was once one of Wall Street's most bearish Analysts, and he will not turn more optimistic about Stocks until mid-2024. Although he expects the S&P 500 Index to rise this year, he warned that the gains in the USA stock market are not broad enough.
Wilson indicated that the gap between the benchmark Index measured by the 200-day moving average and its individual stock components is at a historical high.
The strategist wrote: "This discrepancy can be narrowed in two ways - either market breadth improves, or the S&P 500 Index trades closer to its own 200-day moving average. The first scenario may rely on falling interest rates, a weaker dollar, clarification of tariff policies/new government policies, and stronger earnings revisions."
