Investors see higher interest rates as the biggest threat to stocks and expect a 10-year return of 2%.
Traders work on the floor of the New York Stock Exchange (NYSE) on March 16, 2020 in New York City.
Spencer Platt | Getty Images
Wall Street investors, for the most part, view higher interest rates as the biggest threat to the stock rally, according to a new CNBC poll.
As part of CNBC’s quarterly report, we interviewed more than 100 chief investment officers, equity strategists, portfolio managers and CNBC employees who will manage money in the markets for the remainder of 2021. The survey was conducted from March 22 to March 30.
Almost half of those surveyed said rising interest rates could hurt stocks the most in the future.
About 3 in 10 reported another wave of new coronavirus infections, and 24% said higher taxes would be the biggest hurdle for the market.
The recent sharp rise in bond yields has weighed on stocks, particularly in leading growth areas of the market.
10-year government bond yields rose to pre-pandemic levels of over 1.77% this week and hit a 14-month high. The key rate started below 1% in 2021. The rapid surge in yields has hit soaring tech stocks hard recently as the group relies on light borrowing to grow and higher interest rates undermine the value of their future earnings.
More than 60% of respondents believe that 10-year government bond yields will hit levels above 2% by the end of 2021. The rate last traded on Wednesday was 1.73%.
Another major risk to the stock market is higher corporate taxes. President Joe Biden is expected to raise the corporate tax rate to 28% to fund a more than $ 2 trillion infrastructure package, an administration official told reporters Tuesday evening.
More than half of those polled said stocks will fall when Biden’s corporate tax hike becomes a reality.
Goldman’s U.S. equity strategist David Kostin warned investors that Biden’s tax plans could cut S&P 500 earnings per share by 9%.
Still, many believe that stronger corporate profits should contain and mitigate the impact of higher taxes as the economy recovers from the pandemic-triggered recession.
Biden also advocated raising the highest marginal tax rate to 39.6% and taxing capital gains and dividends at the higher ordinary income tax rate.