Outlook for the USA market: Federal Reserve Board (FRB) directors give an unusual warning of the risks of a stock market rally. There is a possibility that US stocks will face tough challenges in the next six months = Morgan Stanley.

Hello MOOMOO users!Here is tonight's analysis of NY stocks.

Market Overview
The U.S. market started with the Dow Jones Industrial Average, which consists of high-quality stocks, up 103.15 points to 42,809.71. The tech-heavy Nasdaq Composite Index started 73.10 points higher at 19,938.08. The S&P 500 Index, which comprises 500 large-cap stocks in the U.S., was up 17.88 points to 5,993.26.

High valuation of US stocks
The bond market is sounding the alarm for stock market bulls. Stocks are approaching the most overvalued levels compared to corporate bonds and US bonds in the past 20 years.
Traditionally, stocks should provide higher returns due to their high risk, but with the stock market currently at all-time highs, the S&P 500 is becoming increasingly expensive compared to bonds.
The yield of the S&P 500 is currently at 3.7%, the lowest level since 2002 compared to US bonds. It is also approaching levels seen since 2008 when compared to BBB-rated corporate bonds (yield of 5.6%).
Some analysts point out the potential for rising US bond yields to put pressure on stock valuations and potentially lower the valuation of stocks to maintain competitiveness, leading to concerns about adjustments.
Historically, when stock yields fall below bond yields, it often serves as a warning sign for the stock market. This has been observed during past bubbles and periods of heightened credit risk.

FRB Governor Raises Unusual Warning about Stock Market Risks
Federal Reserve Board (FRB) Governor Lael Brainard referenced the high valuations nearing record levels across multiple asset classes including stocks and corporate bonds, warning about the risk of a significant market correction due to negative economic news and changes in investor sentiment.
Mr. Cook's remarks are reminiscent of the warning expressed by Chairman Alan Greenspan in 1996 as 'irrational exuberance.' However, while Greenspan's remarks shocked the market, Mr. Cook's warning was largely ignored in the market, and the S&P 500 Index closed trading that day with a 0.6% increase.
There are multiple indicators showing the market's high valuation. The PBR (Price-to-Book Ratio) and PSR (Price-to-Sales Ratio) of the S&P 500 Index exceed the 10-year average by 2 standard deviations, and the CAPE ratio (PER based on the 10-year average real earnings) is approaching the highest level since the bursting of the IT bubble. Additionally, the S&P 500 Index has recorded over 20% increase for two consecutive years.
While concerns about the high valuation are spreading, analysts point out that further factors such as economic deterioration are needed for a correction in the stock market. Currently, the rise of the S&P 500 Index is expanding from tech stocks to other sectors, which may alleviate the pressure on valuations.
Investors are focusing on the upcoming earnings reports season. The market expects the earnings per share growth rate for 2025 to reach 15%, but if the earnings fall below expectations, especially if major tech companies show weak performances, concerns about high valuations may intensify.

Possibility of tough challenges facing US stocks in the next six months = Morgan Stanley.
Michael Wilson, Chief Investment Officer (CIO) of Morgan Stanley, noted the potential for U.S. stocks to face tough times in the next 6 months. The main factors are said to be rising bond yields and a strong dollar fueling inflation concerns. The company had set a 12-month target for the S&P 500 Index at 6500 points back in November last year.
According to Mr. Wilson, the correlation between the S&P 500 Index and bond yields has clearly turned negative, with the 10-year U.S. Treasury bond yield rising above 4.5%. Furthermore, if the dollar maintains its current high levels, there may be pressure on companies with a large share of overseas operations, and this impact could spread to the entire stock market in the first half of this year.
Furthermore, there may be a clear difference in the stock market performance between the first and second halves of the year. It is also suggested that the second half may see policies such as tax cuts that positively influence the market, supporting stock prices.

President Trump is once again rocking the market.
The unpredictability of President Trump's policies is once again highlighted. Early Monday morning, the dollar fell after reports that tariffs would be more limited than expected. However, it recovered after Mr. Trump denied the reports on Truth Social.
The current yield on the S&P 500 is 3.7%, approaching the lowest level since 2002 compared to U.S. bonds, and the lowest level compared to BBB-rated bonds since 2008.
Michael O'Rourke of JonesTrading points out the potential for rising U.S. bond yields to push down stock valuations, forcing the market to make adjustments to maintain competitiveness.
According to Ven Ram of Bloomberg Markets Live, when stock yields fall below bond yields, it is often seen as a sign of trouble in the stock market like bubbles and increased credit risk.
Contrarians like Padraic Garvey of ING Groep expect further increases in bond yields and widening disparities. They anticipate that the 10-year bond yield could reach 5.5% by the end of the year.