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Morgan Stanley's chief investment officer Mike Wilson on Bloomberg Wednesday issued a sobering warning on another day of record highs saying US stocks are overbought and risks a correction due to rising interest rates. He added bull markets tend to overshoot a little bit in the short term, any kind of pullbacks will probably be bought.

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Key Takeaways from Morgan Stanley on Bloomberg Wednesday

  • "The market is overbought and the market is probably a little bit overvalued quite frankly because interest rates now are finally starting to catch up,"
  • "The risk in the market now is that as 10-year yields finally start catching up, we have a valuation reset because stocks are long duration assets, particularly the U.S. stock market, and that could create a bit of a correction."
  • The 10-year has jumped sharply this week to above 0.9%.
  • "The market is overbought and the market is probably a little bit overvalued quite frankly because interest rates now are finally starting to catch up," 
  • "The risk in the market now is that as 10-year yields finally start catching up, we have a valuation reset because stocks are long duration assets, particularly the U.S. stock market, and that could create a bit of a correction."
  • Argued that "corrections are normal in a bull market, and any dip in the stock market would be an opportunity for him to put additional capital to work."

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Note at the end of November Wilson forecasted that the S&P 500 could crack as much as 12% before the end of 2020 as the vaccine-driven rally runs out of steam. However the S&P 500 closed November at a record high as vaccine progress excited investors about an economic reopening.

Source: Bloomberg

From The TradersCommunity News Desk

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