Mike Wilson’s an equities guy, but he has bonds on his mind this week.

As most of you are well apprised, the stock rally in 2024 came despite rates, not because of them.

In stark contrast to the raucous “everything rally” in November and December which was attributable in no small part to the prospect of meaningfully easier (or meaningfully less restrictive) monetary policy in 2024, this year’s risk-asset frenzy unfolded against a backdrop of fading rate-cut expectations.

I’ve used the chart above so many times by now that it’s a cliché. I’m sorry about that. Really I am. I despise clichés. In my defense, I’ve created any number of variants using the same two series. I haven’t used the variant shown above in at least a week.

In his latest, out Monday, Wilson wondered if this is the week rates come back into focus for stocks, which he described as “trying to move past their dependence on central bank policy.” Trying and succeeding, I might add.

As Wilson put it, “the rise in rates this year has not had the typical effect on valuations” which suggests that “for now, equity investors have moved past the Fed, inflation and rates and are squarely focused on the better growth consensus expects to arrive this year.”

The figure above is yet another version of the same chart, this time from Wilson. It’s 2024 rate-cut pricing with multiples. It’s the same story: Rising stocks (i.e., re-rating) despite fading rate-cut pricing.

Whether the blue line in Wilson’s chart continues to move lower depends in the near-term on the dot plot refresh this week. If you haven’t read my March FOMC preview, you’re encouraged to do so at your leisure here.

Looking out the curve, Wilson says 4.35% 10s is a key level for stocks’ sensitivity to rates. “It’s interesting to us that some of the higher beta, growth pockets of the market have started to see multiple compression recently,” he wrote.

As the chart indicates, Wilson’s of the mind that the 200-day matters. Or might matter.

“The correlation of small-cap performance versus interest rates remains meaningfully negative, indicating small-caps are likely to exhibit greater interest rate sensitivity than large-caps on a move higher in rates,” he went on. “Conversely, should rates decisively fall back below the 200-day moving average, it could serve as support for equity valuations to remain elevated.”

The bottom line is this: Either the Fed thinks inflation overshoots in January and February suggest a rekindled price growth impulse or they don’t. If they do, the new dot plot might reflect just two rate cuts in 2024. If they don’t, it’ll probably still show three.

If it’s two, stocks might notice. If it’s still three, and the core PCE projection isn’t meaningfully different versus December’s SEP, there’s no obvious reason for equities to flinch. That doesn’t mean stocks won’t find another excuse to sell off, it just means that what matters this week for the short-end is the median 2024 dot and, relatedly, the 2024 core PCE projection.

As for 10s, I’m not convinced there’s anything magical about Wilson’s 4.35% threshold. Stocks’ response to rising bond yields is as much (and in most cases more) about the rapidity of rate rise than it is about any specific level. Colloquially: If 10-year yields (and especially reals) rise really far, really fast, that’s typically bad for stocks. Otherwise, equities’ response to rising bond yields depends on a whole constellation of factors, the level being one, but by no means the most, important.