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While traders are taking the regulatory backstop of deposits as a positive sign for markets, Morgan Stanley’s Mike Wilson expects otherwise. “With the back-stopping of bank deposits by the Fed/FDIC, many equity investors are asking if this is another form of QE and therefore ‘risk on,'” Wilson said to clients in a Monday note. “We argue it’s not, and instead represents the beginning of the end of the bear market as falling credit availability squeezes growth out of the economy.” Despite ongoing concerns in the banking sector, investor sentiment remains resilient in the equities market. The S & P 500 rose in Monday trading following a forced takeover of Credit Suisse by UBS that was orchestrated by regulators . The S & P 500 is also coming off a positive week, rising 1.4%. .SPX 5D mountain S & P 500 coming off of strong week. However, Wilson, the bank’s chief investment officer, said it’s too early to take such a confident outlook. He said lending standards will get even tighter, while the cost of deposits will continue to rise — weighing on net interest margins for banks. Net interest margin measures the difference between a bank’s interest income and interest expenses . “In short, the risk of a credit crunch has increased materially, in our view,” Wilson wrote. The investment strategist warned investors against even mega-cap tech names that are considered more stable. He recommended investors allocate toward defensive, low-volatility sectors. Elsewhere, Wilson flagged the breakdown in performance breadth measures as troubling. For example, the cumulative advance/decline indicator for the Nasdaq Composite has dropped “significantly” over the past several weeks, meaning fewer stocks are participating in the benchmark’s rally. “Ultimately, these are signs of unhealthy market internals, in our view,” he said. — CNBC’s Michael Bloom contributed reporting.
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