Macro volatility suggests equities should be lower

Cross market volatility suggests equities should be lower

Biggest move in the two year yield since 1987, biggest move in 2s30s since 9/11… plenty of cross market volatility but equities aren’t reacting. Over the last year the SPX P/E multiple has had a -65% correlation to rates volatility, which at current levels suggests P/E should be 15x – 2 turns lower or an SPX of ~3400. The last time rate vol was this high relative to equity vol was during the Taper Tantrum. Yes the Fed is further along in their hiking cycle – and rate vol will normalize after the shocks of the last few days. But Morgan Stanley's QDS team argues that economic/earnings growth and financial risks are higher now than they were two weeks ago.