The 10-Year Treasury Yield (TNX) has emerged as a pivotal factor influencing equity market valuations, according to Morgan Stanley's latest US Equity Strategy report. The correlation between bond yields and equity performance turned decisively negative in December, with the 10-year yield climbing above 4.5%, creating a headwind for equity valuations. "Interest rate sensitivity has returned as a key driving force for equity markets," Morgan Stanley analysts note, emphasizing the impact of Friday's robust payroll report on pushing yields higher. This dynamic has reinforced Morgan Stanley's pro-quality stance, favoring companies with strong balance sheets that exhibit less sensitivity to interest rate fluctuations. As the market anticipates the upcoming Consumer Price Index (CPI) release, the focus remains on inflation's role in shaping future Fed policy and bond yields.