Investors see higher interest rates as the biggest threat to stocks

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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 largely view higher interest rates as the biggest threat to derail the rally in stocks, according to a new CNBC survey. 

As a part of CNBC’s Quarterly Report, we polled more than 100 chief investment officers, equity strategists, portfolio managers and CNBC contributors who manage money about where they stood on the markets for the rest of 2021. The survey was conducted from March 22 to March 30.

Nearly half of the respondents said rising interest rates could hurt stocks the most going forward.

About 3 in 10 cited 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 market-leading growth areas of the market.

The 10-year Treasury yield climbed to a pre-pandemic level above 1.77% this week, touching a 14-month high. The benchmark rate started 2021 below 1%. The swift advance in yields hit high-flying tech stocks hard recently because the group relies on easy borrowing for growth and higher rates erode the value of their future earnings.

More than 60% of the survey respondents believe the 10-year Treasury yield will reach levels higher than 2% by the end of 2021. The rate last traded around 1.73% Wednesday.

Another major risk for 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 package in infrastructure spending, an administration official told reporters Tuesday night.

More than half of the survey respondents said stocks will fall if Biden’s corporate tax hike becomes a reality.

Goldman U.S. equity strategist David Kostin warned investors that Biden’s tax plans could curb S&P 500 per-share earnings by 9%.

Still, many believe the impact from higher taxes should be contained and softened by stronger corporate earnings as the economy recovers from the pandemic-induced recession.

Biden also endorsed upping the top marginal tax rate to 39.6% and taxing capital gains and dividends at the higher ordinary income tax rate.