Morgan Stanley’s Wilson Says Stocks Overbought, Risk Correction
Mike Wilson, chief U.S. equity strategist at Morgan Stanley & Co., speaks during an interview in New York. (Photographer: Christopher Goodney/Bloomberg)

Morgan Stanley’s Wilson Says Stocks Overbought, Risk Correction

U.S. equities are overbought and at risk of a correction after their recent surge, according to Morgan Stanley’s Mike Wilson.

One key risk that most people are overlooking is that Treasury yields continue to march higher, which could create jitters that send stocks lower, said the firm’s chief investment officer who began his career at the bank more than 30 years ago.

Morgan Stanley’s Wilson Says Stocks Overbought, Risk Correction

“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 U.S. stock market.”

Morgan Stanley’s Wilson Says Stocks Overbought, Risk Correction

Surging Treasury yields this week amid renewed optimism about a U.S. stimulus program and positive vaccine news are leaving some investors nervous that a higher discount rate may eventually require an adjustment lower in equity valuations with stocks at all-time highs. The S&P 500 Index is coming off a record monthly gain and is trading at valuations last seen at the bursting of the dotcom bubble.

Morgan Stanley’s Wilson Says Stocks Overbought, Risk Correction

Still, Wilson, who is also the company’s chief U.S. equity strategist, said any selloff in stocks may be a buying opportunity.

“It’s gotten a little frothy here in the last couple of weeks,” he said. Any correction would be welcome, “because it would make me more comfortable putting additional capital to work.”

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