Rising Treasury yields and bond volatility may trigger the first equity pullback since March, despite a raised 12-month S&P 500 target of 8,300.
Morgan Stanley strategists warned that persistent bond market volatility and climbing long-term yields could spark the first meaningful correction in equities since late March. The S&P 500 retreated from record highs last week, with futures signaling further losses amid inflation concerns tied to elevated energy prices and geopolitical tensions involving Iran.
The bank raised its 12-month S&P 500 target to 8,300, citing robust earnings growth outside major shock recoveries. However, strategists noted that investors have underestimated the breadth of profit expansion beyond AI-related stocks, while positioning for this trend remains limited. A resolution to the Iran conflict is seen as critical for yields to stabilize and earnings growth to accelerate.
Treasury yields surged across the curve, with the 30-year hitting its highest level in nearly three years. Japanese yields also climbed to multi-decade highs, amplifying concerns about global bond market stress.