Icahn right on high yield, wrong on stocks: Strategists

Three reasons to push back on Icahn's warnings: Pro
Three reasons to push back on Icahn's warnings: Pro   

Billionaire investor Carl Icahn is right to sound alarm bells when it comes to high-yield debt, but stocks have not yet entered the danger zone, Barclays Wealth's Hans Olson said Thursday.

High-yield debt is now expensive and spreads are not wide enough to compensate for credit or event risk, the head of Barclays Wealth's investment strategy said on CNBC's "Squawk Box."

"If you look at spreads, absolute yields, they're below average, and meaningfully below average. And moreover, it's part in parcel of a world in which you have zero interest rates," he said. "You need a reference point for money in order for markets to work efficiently."

Icahn told CNBC on Wednesday the market is overheated and the American public is "walking into a trap" just like it did in 2007 in the runup to the financial crisis. He singled out the high-yield debt market as a source of potential trouble.

Read MoreIcahn warns markets 'extremely overheated,' especially in junk bonds

"It's almost ridiculous to go in and buy a high-yield bond today at 5.25 percent. That's a single B bond at 5.25 when you can actually buy corporates, single A corporates, that really aren't going to go bankrupt. There's almost no chance at 5.25. So for 2 percent, people are risking 40 percent. I mean, it's absurd," Icahn told CNBC's "Fast Money Halftime Report."

But he also said markets in general are overheating and much of the bullish performance these days is due to bond yields being low. That has allowed companies to borrow cheaply and buy other firms that they wouldn't ordinarily acquire.

Wall Street is now experiencing a bout of deja vu, he said. Instead of pushing the mortgage-backed securities that brought down markets in 2008, bankers are now selling companies at huge multiples that are not justified by their earnings, he said.

"If you get any type of a downturn in the economy, or a crisis, I think there's going to be trouble paying the interest rates, even though they were small," he said.

Read MoreCramer: Icahn is right, the market's overheated

Barclay's Olson diverged with Icahn on this point, saying it is hard to argue equities are extremely overvalued trading at an average of about 17 times earnings.

Morgan Stanley Wealth Management does not believe there is much excess in U.S. equities despite a strong rally over the last five years, said Daniel Skelly, head of the firm's equity model portfolio solutions.

That view is based on three measures, he told "Squawk Box." First, at 17 times earnings on the S&P 500, price-to-earnings ratios are at fair value, he said, noting the 40-year average is 14 times. "We're slightly elevated, but by no means are we excessive though the way we were back in 2000 when the PE was trading at 30 times."

Next, Morgan Stanley believes margins are likely to stay high because corporate management teams are not overspending. Lastly, markets are not seeing "euphoric flows" typical of top-of-market behavior, Skelly said.

As for private market technology start-up valuations, he acknowledged that there are pockets of exuberance but said these businesses are fairly isolated.

"I don't think they have the type of systemic impact that you saw back in 2000, when really the big cap tech companies made up such a big part of the index that you really had a much bigger probability for wider impact," he said.

Read MoreWe have a 'giant bubble' in tech, but it's not a bad thing: Tech pro

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