With the rise in U.S. Treasury yields, should the U.S. stock market be worried?

Concerns about inflation have pushed up U.S. Treasury yields and strengthened the dollar, posing downside risks for U.S. stocks. Recently, Morgan Stanley Chief Investment Officer Michael Wilson warned in a report that as the 10-year U.S. Treasury yield rises above 4.5%, it has put pressure on U.S. stock valuations, with the correlation between the S&P 500 index and bond yields turning "significantly negative," indicating that U.S. stocks may face severe challenges in the next six months. Wall Street Journal previously mentioned that as the time approaches for Trump to officially take office as President of the United States, concerns in the bond market about inflation prospects have begun to rise, with the 10-year U.S. Treasury yield climbing to 4.695% on Tuesday, reaching a new high since April of last year. The 30-year U.S. Treasury yield has also risen to its highest level since late October 2023, breaking through the upper range. In fact, since December, the rebound momentum of U.S. stocks has weakened due to concerns about economic growth and the Federal Reserve's more hawkish policy outlook than expected. Wilson stated that the current level of the dollar has put pressure on companies with significant international business, and according to the 200-day moving average, the gap between the S&P benchmark index and its individual components is at a historical high, indicating poor market breadth, which may more broadly affect the stock market in the first half of this year. "We believe that 2025 may be a year with different performances in the first and second halves." However, Wilson also added that potential market-friendly policies such as tax cuts could support the stock market in the second half of this year. Wilson indicated that for U.S. stocks to improve the concentration of gains, they may need to "rely on a combination of factors such as declining interest rates, a weaker dollar, clearer tariff policies, and stronger earnings revisions." In the outlook report released last November, Morgan Stanley set a target price of 6,500 points for the S&P in 2025, approximately 9% higher than last Friday's closing level