Morgan Stanley’s top stock strategist Mike Wilson says the collapse of Silicon Valley Bank and the subsequent banking crisis, have set off a credit crunch in the US. He cited new data showing financial institutions have been tightening lending standards.
HIs warning follows the collapse of two regional lenders, Silicon Valley Bank (SVB) and Signature Bank, following massive deposit runs which triggered their failures within days. A third bank, First Republic Bank, reached the brink of collapse only to be rescued by an alliance of top Wall Street Banks who delivered $30 billion in liquidity in the form of uninsured deposits. The big banks intervened out of fear that a collapse of a third bank in such a short period could have triggered widespread deposit runs that would have impacted confidence in the financial sector.
In a note to clients reported on by Business Insider, Wilson said that over the past two weeks, lending levels have seen the steepest decline on record. He said he felt the fall was due to US banks seeking to offset record levels of deposit flight seen in the month since the collapse of Silicon Valley Bank had set off the banking crisis.
In a Sunday note, Wilson said, “The data suggest a credit crunch has started,” with $1 trillion in deposits having already been withdrawn from US banks since the Federal Reserve began hiking rates in earnest almost one year ago.
Wilson noted that the fact major stock indexes have been holding steady since SVB’s failure is not an indication the economy has begun to recover, but rather it is a sign that the market is subject to a sudden plunge similar to what has occurred in small caps and bank stocks since March.
Wilson warned, “To those investors cheering the softer-than-expected inflation data last week, we would say be careful what you wish for,” noting the Consumer Price Index in March showed that inflation had been climbing less than expected.
He went on, “If/when revenues begin to disappoint, that margin degradation can be much more sudden, and that’s when the market can suddenly get in front of the earnings decline we are forecasting.”
Previously, Wilson has predicted that US equities which has previously reached unsustainable highs, could see a 26% plunge within months.
