Mike Wilson, Chief U.S. Equity Strategist and Chief Investment Officer for Morgan Stanley, said the sudden collapse of Silicon Valley Bank (SIVB) and Signature Bank (SBNY) is a signal that the bearish phase in the US stock market may be coming to an end.
"Given the measures taken by the Federal Reserve System and the Federal Deposit Insurance Corporation (FDIC), questions arise among market participants about whether such steps are another form of quantitative easing and, therefore, a harbinger of increased demand for risky assets. We argue that this is not the case, and we believe that we are at the beginning of the end of the bear market, since the decline in the availability of loans is holding back economic growth," Wilson said, adding that the S&P 500 index will remain unattractive until the risk premium on stocks rises to 400 basis points from the current 230 basis points.
"Recent alarming events in the banking sector have increased concerns about the state of the global financial system, stirring up markets. In general, the risk of a credit crisis has increased significantly. This is how bear markets end - an unforeseen catalyst, which is obvious in hindsight, forces market participants to recognize what has been right in front of them all this time," the strategist said, adding that the situation in the banking sector should force investors to focus on worsening growth prospects against the background of restrictive lending conditions.
Wilson said that analysts are likely to lower their expectations as the earning season approaches, while corporations are preparing to significantly lower their forecast figures.