Stocks will remain attractive despite rising Treasury yields, Morgan Stanley predicts


The market could have turned a nook on inflation fears.

But in line with Morgan Stanley’s Matthew Hornbach, it ought to have occurred sooner.

His analysis exhibits the rise in Treasury yields will not have a long-lasting impression in the marketplace as a result of it isn’t the kind of improve usually related to weak spot in shares.

“We’re not seeing interest rates spike higher. We’re not seeing a taper tantrum like we did in 2013 when interest rates rose 150 basis points in three months,” the agency’s world head of macro technique informed CNBC’s “Trading Nation” on Tuesday.

But it took Federal Reserve Chairman Jerome Powell’s testimony Tuesday earlier than the Senate Banking Committee to quell jitters. On the heels of his feedback, the Dow staged a massive 360-point comeback and closed nearly 16 factors greater.

“Powell talked about the higher interest rates that we’ve seen over the past six months as not really being a problem because of the nature in which interest rates have risen,” Hornbach mentioned.

Hornbach lists enhancements in Covid-19 case statistics, manufacturing information and anticipation of one other historic virus assist bundle for the tick up in yields. As of Tuesday’s shut, the benchmark 10-year Treasury note yield was at 1.34%. It’s up almost 24% over the past four weeks however down about 9% during the last 12 months.

“The Fed also recognizes that it will have to keep an extraordinary amount of accommodation in the marketplace, which just naturally lends itself to being on hold with short-term interest rates at zero for longer,” he added. “Those two factors combined can get the yield curve to continue to steepen up and get those long-term interest rates to keep pushing up towards 2%.”

Hornbach mentioned he does not see a difficulty till the 10-year yield will get to 2.5%.

“Then, I think you might see a different type of reaction in risky assets — including the equity market,” Hornbach mentioned.

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