Stock market warning: How to invest amid bank failures, Morgan Stanley

Mike Wilson of Morgan Stanley says that's a mistake, and these developments will hurt stocks.It's no surprise that investors have been encouraged by the way the government and the finance industry have responded to signs of a possible banking crisis.

But even if that's true, Morgan Stanley says investors are far too optimistic right now. Chief Investment Officer and Chief US Equity Strategist Michael Wilson pointed out in a recent note to clients that traders in the bond market are much more cautious, and he says they have a much better understanding of the situation because they are focused on changing financial conditions..

Wilson explained that the Fed has only added some short-term liquidity to the system, and it isn't easing financial conditions. In other words, the Fed is lending to banks instead of buying from them. That means bank leverage is increasing, not decreasing. The economy has been slowing for months, thanks in large part to the Federal Reserve's sharp increases in interest rates over the last year. Wilson saysas banks pare their lending, making it more difficult for businesses and individuals to borrow money.

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