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Turmoil within the banking sector is likely to bring a "vicious" start to the end of the bear market in U.S. stocks, according to Morgan Stanley.
Michael Wilson, the chief U.S. equity strategist at Morgan Stanley and a longtime Wall Street bear, said in an analyst note on Monday that the stock market is in the early and painful stages of exiting the bear market than began in the summer.
"The last part of the bear can be vicious and highly correlated," he said. "Prices fall sharply via an equity risk premium spike that is very hard to prevent or defend in one’s portfolio."
He suggested that stocks are still not worth the risk, particularly when investors can turn to safer assets like Treasurys and other bonds. Until the equity risk premium – which measures the expected return on stocks above the risk-free rate – climbs as high as 250 basis points, the S&P 500 will remain unattractive. The ERP is currently at 230 basis points.