Morgan Stanley: Bond market has already tightened financial conditions for the Fed in advance, a moderate CPI may drive the broadening of the US stock rally.

BlockBeats news, October 12: Morgan Stanley's chief US equity strategist Mike Wilson said that the US 10-year Treasury yield has risen about 120 basis points since February, compounded by a stronger dollar and high oil prices, financial conditions have tightened notably, and the bond market is completing in advance part of the tightening task that would otherwise require the Fed to achieve through rate hikes. If this process is enough to curb economic demand, the Fed may not need to raise rates further in the future.

Wilson pointed out that the US September CPI will be released this Wednesday. If inflation continues to moderate, it may ease upward pressure on long-term rates and reduce market expectations for further rate hikes. He suggested focusing on bond market volatility and financial stock performance to judge whether financial conditions are stabilizing.

Wilson believes that the recent resilience of US stocks has been mainly driven by large AI-related stocks, with the S&P 500 market-cap-weighted index performing significantly stronger than the equal-weighted index, reflecting that pressure from high rates on most stocks has not yet faded. If bond market volatility declines and bank earnings are solid, the market rally is expected to spread from AI leaders to more sectors. He also noted that the current rise in US Treasury yields partly reflects capital demand brought by AI infrastructure investment, rather than purely recession risk.