A labor slowdown could ruin America's soft-landing hopes and cause a 10% stock correction, Morgan Stanley CIO says

• A weakening jobs market could trigger a 10% stock correction, says Morgan Stanley CIO Mike Wilson.
• He told Bloomberg that if non-farm payrolls fall under 100,000, it could break the soft-landing narrative.
• Other risks include inflation or a Treasury yield jump, set off by US fiscal fears, Wilson said.

The job market could make or break stocks, with any sudden weakness possibly triggering a meaningful correction, Morgan Stanley CIO Mike Wilson told Bloomberg TV .

If new labor-force additions start to decline, that will remove the prospect of a soft landing, and likely prompt the Federal Reserve to cut interest rates, Mike Wilson said. With stock upside currently driven by hopes for a goldilocks economy, that would be enough to bring on a 10% stock decline.

"What'll the key trigger be for us to say, okay, that growth is turning into a real growth scare or potentially recession fear?" Mike Wilson said. "It's a labor market."

The slowdown would be apparent if nonfarm payroll numbers fall under 100,000, or if unemployment rises past 4.3%, he said.

To be sure, at least one of these prints is still a far cry away from Wilson's threshold: in May, new payroll additions surged past estimates to 272,000 .

But more broadly, cracks are starting to appear, Unemployment finally breaching 4% that same month, while below-surface hiring trends have shown mixed signals.

That's important to stock investors as the market has become more oriented on growth's trajectory, rather than where inflation and interest rates are headed, Wilson said in a recent note.

For this reason, current market highs make sense, he told Bloomberg, as investors load in on quality on growth trades.

"The question is, are those multiples now in those particular stocks too high? I think if you get a perfect soft landing and it's plain, it can be fine," he said. "If you get any aberration from that, it's going to be a problem."

There are three main aberration risks, he said, noting that a growth slowdown has the highest probability of happening. Rebounding inflation or a Treasury yield spike are the two other threats. Yields would climb if investors grow nervous about federal debt.

A labor-growth risk is not something to happen today, but could become a danger in the third or fourth quarter, Wilson noted. Once it hits, it would have the power to pull down more than just the leading tech stocks, he said.