Last week's partial yield curve inversion following a "dovish surprise" from the Federal Reserve is bearish for the stock market and that means investors should "remain defensively positioned," Morgan Stanley's U.S. equity strategist Michael Wilson said Monday.
"An inverted curve has implications for stocks, particularly given the fact we are now full on valuation," Wilson said. "In our view, lower rates are only good to a point because eventually the fall in rates is not just about the Fed giving equity investors a 'green light' to risk up, but it's also about slowing growth."
On Friday, the yield on 3-month Treasury bills rose above that of 10-year Treasury notes. Part of the broader inversion pattern, the ascent of the 3-month yield above the 10-year yield is an important economic recession indicator. Additionally, this was the first time these two yields inverted since 2007.