By Levin Stamm

(Bloomberg) -- A renewed spike in oil prices is the biggest risk facing US stocks, according to Morgan Stanley's Michael Wilson, who recommended using energy shares to hedge portfolios.

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The strategist said another advance in oil prices could drive yields higher and eventually force the Federal Reserve to act as Chair Kevin Warsh seeks to bring inflation back to target.

"At that point, the response would fall more to the Fed than the Treasury," he said. "We have little doubt the Fed would ultimately respond, but probably not before some additional market instability."

Brent crude prices climbed about 30% since early July to trade around $93 per barrel amid renewed fighting in the Middle East and delays in reaching a permanent US-Iran peace agreement. Yields on 30-year Treasuries rose to near two-decade highs last week, prompting the US Treasury to increase debt buybacks.

Stocks have suffered more when oil rises than they have benefited when it falls, Wilson said, making stable crude prices increasingly important for the market. He recommended using energy stocks as a hedge against a potential spike. ExxonMobil Holdings Corp. and Chevron Corp. shares have rallied over 30% this year, more than double the S&P 500's gain.

More broadly, Wilson also reiterated his preference for so-called quality stocks that have more stable earnings, strong margins and efficient operations.

The strategist said the S&P 500's greater exposure to quality companies helped protect it from steeper losses during the semiconductor-led selloff in July. The index on Friday closed less than 2% below its record.

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The index's makeup is also one reason Wilson prefers US shares over international peers. He said chip stocks are unlikely to regain market leadership in the near term.

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