Bond Yields and Fed Assessment from Morgan Stanley
While the rise in US bond yields and the tightening process are closely monitored in the markets, upcoming inflation data and the bank earnings season stand out as critical thresholds.
The rally in US bond yields and the tightening in financial conditions constitute a critical turning point for the Fed's future steps, while Morgan Stanley strategist Wilson made important evaluations regarding the markets.
Bond Yield and Tightening Process
It is stated that the yield on the 10-year US Treasury note has increased by approximately 120 basis points since February. Along with the appreciation of the dollar and the rise in oil prices, this situation further deepens the tightening in financial conditions.
Fed Policies and Inflation
It is expressed that if economic activity slows down sufficiently with the current tightening, the Fed may not need to raise the policy rate further. The US consumer inflation data to be released on Wednesday is expected to be decisive in this process.
Concentration Risk in the S&P 500 Index
It is stated that the current level of the S&P 500 index does not fully price in the tightening in financial conditions. It is emphasized that the rise in the index is driven by large-scale companies focused on artificial intelligence.
Equal-Weighted Index Divergence
It is noted that large-scale companies are less affected by funding costs thanks to strong cash flow. On the other hand, it is stated that the equal-weighted S&P 500 has negatively decoupled from the main index by approximately 6 points since March.
Bank Financial Statements as a Leading Indicator
It is expressed that volatility in the bond market and the performance of bank stocks should be closely monitored. It is conveyed that the third-quarter earnings reports of JPMorgan, Goldman Sachs, Citigroup, and Wells Fargo will be leading indicators for the markets.
Growth Concerns and Pricings
It is acknowledged that high bond yields pose downside risks to economic growth. However, it is argued that this effect has not yet become pronounced in current data and an earnings season exceeding expectations could support the recovery.