According to Morgan Stanley’s Mike Wilson, the US equities look overbought and risk correction with treasury yields marching higher.
“The market is overbought, and the market is probably a little bit overvalued quite frankly because interest rates are finally now starting to catch up,” Wilson said on Bloomberg TV. “The risk in the market now is that as 10-year yields finally start catching up, we have a valuation reset because stocks are a long duration asset, particularly the US stock market.”
The 10-year yield rose to 0.96% earlier this week, having bottomed out at 0.5% in August, according to data source TradingView.
Treasury yields have been rising on expectations for additional US fiscal stimulus and hopes for a quick economic recovery on potential coronavirus vaccines.
If the yields continue to rise, investors may rotate money out of stocks and into bonds, causing an equity market pullback.