Morgan Stanley's Mike Wilson Warns Higher Yields And Energy Prices Could Spark 10% Market Drop

US stocks are vulnerable to a further increase in energy prices and bond market volatility, writes Morgan Stanley's Michael Wilson, who having been notably bullish for much of the past year, is growing increasingly cautious over the near term, and sees the S&P 500 Index dropping as much as 10% in such a scenario.

In his latest note (available to pro subs), Morgan Stanley's chief equity strategist said that while strong corporate earnings have helped stock prices withstand higher bond yields so far, S&P 500 valuations had declined in the past four months to the lowest since March, especially if one strips away the handful of tech generals who have been propelling the market higher amid record negative breadth.