As 10-year Treasury yields continue to rise starting in 2025, Morgan Stanley recommends investors stick to high-quality stocks to weather the ensuing market turmoil. Morgan Stanley’s chief analyst said the driving factors behind the rise in benchmark yields include expectations of a less dovish Fed policy stance and a rise in term premiums, the extra return investors demand in exchange for the risk of holding fixed income. Rate. “Recently, these drivers have pushed 10-year Treasury yields above 4.50%, and the correlation between stock returns and bond yields has moved decisively into negative territory (as yields rise, stocks fall, and vice versa) — —This is something we haven’t seen since last summer,” he wrote in a note on Monday. “We believe the combination of these factors makes interest rates the most important variable to watch in early 2025.” Indeed, on Monday, the 10-year Treasury yield topped an intraday high of 4.6%. The strategist continued: “The recent rise in interest rates provides another reason to keep the quality curve rising, as companies with stronger balance sheets/lower leverage may be less sensitive to interest rates.” US10Y 1 million Mt. US10Y, 1 month While Wilson believes market leadership will expand this year, he believes this will likely focus on “larger market capitalization and higher quality” given that economies entering a “late cyclical environment” are consistent with outperformance. stocks of this group. He also said that relative earnings revisions are “rising” for companies with high quality factors. With this in mind, Wilson’s team screened the top 1,000 cyclical, growth and defensive stocks by market capitalization and had a composite quality score that was “above the median” compared to industry peers. The firm’s analysts also gave all stocks on the screen an Overweight rating. See the rating list below. Artificial intelligence chip darling Nvidia has stood out among cyclicals and growth stocks after surging more than 171% in 2024. (Nvidia) shares rose more than 4% on revenue along with other chip companies. Most on Wall Street will stick with Nvidia in the coming year. Of the 65 analysts covering the chip giant, 59 have a strong buy or buy rating, while the remaining six have hold ratings, according to LSEG. The consensus price target suggests upside potential of over 12%. Chewy, like Nvidia, belongs to the growth group, and after three consecutive trading years of declines from 2021 to 2023, Chewy’s stock price experienced positive growth in 2024. More than 41%. The stock rose 4% on Monday after Mizuho Bank upgraded the stock to outperform from neutral, with most analysts on Wall Street also calling the stock bullish. To be precise, 18 out of 31 analysts have a Strong Buy or Buy rating, according to LSEG. However, the consensus price target indicates a decline of more than 3% from current levels. As far as defensive stocks go, Walmart is a key stock on the list, surging about 72% in 2024. Only has a Strong Buy or Buy rating. The consensus price target calls for an increase of more than 7% from current levels.
Morgan Stanley said high interest rates threaten the bull market. Ride Out in These Stocks | Real Time Headlines
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