In a research note by its strategists, which includes Andrew Sheets
The note says that US equities only had a taste of the potential damage from higher bond yields in the rout during late January to early February - with the biggest test yet to come.
In the note, they mentioned that although higher bond yields meant a tougher time for equity investors, the key metric of inflation-adjusted yields didn't break out of their range for the past five years.
"Should they break out of range as investors anticipate greater central bank policy normalisation, that could hit stocks harder", according to Morgan Stanley. Further adding that "it's when growth softens while inflation is still rising that returns suffer most", while pointing out that they could see a challenge for stocks in Q2 as "activity indicators moderate".
This is a somewhat different view from the one shared by analysts at JP Morgan, which argued that higher inflationary pressures would actually benefit equities.
