The recent slide in stocks and bonds could worsen as traders fret over the prospect of higher inflation and interest rates, but the decline is unlikely to reach the extremes seen in 2022 when markets weathered their worst year since the global financial crisis, according to Morgan Stanley’s Mike Wilson.

The bank’s chief US equity strategist expects a choppy first half of 2025 and an improved second part of the year, he said during an interview with Bloomberg Television on Wednesday. The difference between now and then is that the Fed in 2022 was aggressively raising interest rates at a pace that is unlikely going to be repeated in the foreseeable future.

There is not as much downside for rates today “but that doesn’t mean there couldn’t be 10% downside for many stocks if rates stay at this level,” Wilson noted.

“Equity/bond yield correlations have turned negative again,” Goldman Sachs Group Inc. strategists including Christian Mueller-Glissmann wrote in a note, stressing that if yields keep going up without good economic data, it will hit equity markets. “With equities having been relatively resilient during the bond selloff, we think near-term correction risk is somewhat elevated in case of negative growth news.”

“Historically, the most common driver of significant losses are recessions,” said Henry Allen at Deutsche Bank AG. “The huge plunges in 2020 and 2008 required an economic contraction, and the bursting of the dot-com bubble also happened amidst a slowdown that ended up in a recession in 2001. But right now, there’s no sign of a slowdown, and if anything, several leading indicators are looking increasingly positive.”

If economic growth stays robust and the Fed doesn’t start pivoting in a hawkish direction, it’s not implausible that elevated valuations continue for some time, Allen noted. However, if signs of a slowdown emerge or rate hikes move back on the table, the historic precedents show that equities are capable of a notable decline, even without a recession, he concluded.

“The start of the new year has been volatile,” said Craig Johnson at Piper Sandler. “Increased sensitivity to rising bond yields and short-term oversold conditions are testing investors’ patience and nerves. Despite the increased caution, we remain optimistic as the major indices’ primary uptrends remain well-intact.”

Corporate Highlights:

• Albertsons Cos. raised its adjusted earnings outlook for the full year, a positive sign for the grocer seeking to pave a new path after its proposed deal with Kroger Co. fell apart.

• BlackRock Inc. told employees it’s cutting roughly 1% of its workforce after it committed more than $25 billion for acquisitions last year to expand its reach in private-market assets and data.

• Ally Financial Inc. will cut jobs, end mortgage originations and consider strategic alternatives for its credit-card business as borrowers have struggled to pay down costly debt.

• Constellation Energy Corp. is nearing an acquisition of Calpine Corp., people familiar with the matter said, in what would be one of the biggest ever deals in the power generation sector.

• Hershey Co. is asking the US’s top derivatives regulator for permission to buy a huge amount of cocoa through the New York exchange after global shortages sent prices to a record, according to people familiar with the matter.

• New York City is trying to close a loophole that Uber Technologies Inc. and Lyft Inc. have used to deny drivers millions of dollars in pay with a raft of new measures that would effectively raise their rates by roughly 6.1%.

• Advanced Micro Devices Inc. was downgraded to reduce from buy at HSBC, which cited difficulty in competing with Nvidia Corp.

• Merck & Co. was downgraded to hold from buy at Truist Securities, which cited growth concerns at the pharmaceutical company.

• Palo Alto Networks Inc., a security software company, received a pair of analyst downgrades.

• The US utilities sector was upgraded to overweight from market weight at RBC Capital Markets, which called the group the “top defensive sector.”

Key events this week:

• China CPI, PPI, Thursday

• Eurozone retail sales, Thursday

• US state funeral and national day of mourning for former President Jimmy Carter is a federal holiday, Thursday

• Japan household spending, leading index, Friday

• US jobs report, consumer sentiment, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.2% as of 4 p.m. New York time

• The Nasdaq 100 was little changed

• The Dow Jones Industrial Average rose 0.25%

• The MSCI World Index was little changed

Currencies

• The Bloomberg Dollar Spot Index rose 0.4%

• The euro fell 0.2% to $1.0316

• The British pound fell 0.9% to $1.2363

• The Japanese yen fell 0.2% to 158.37 per dollar

Cryptocurrencies

• Bitcoin fell 2.5% to $94,069.98

• Ether fell 2.2% to $3,288.33

Bonds

• The yield on 10-year Treasuries declined two basis points to 4.67%

• Germany’s 10-year yield advanced seven basis points to 2.55%

• Britain’s 10-year yield advanced 11 basis points to 4.80%

Commodities

• West Texas Intermediate crude fell 1.2% to $73.38 a barrel

• Spot gold rose 0.5% to $2,663.05 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Andre Janse van Vuuren, Sujata Rao, Kit Rees, Joanna Ossinger and Rob Verdonck.

Most Read from Bloomberg Businessweek

©2025 Bloomberg L.P.