US stocks risk correction as treasury yields rise

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.

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