The good news is that the final phase of the U.S. stock bear market has begun. The bad news is that this phase will be very painful.

The pressure on the U.S. banking system could mark the beginning of the end of the bear market in U.S. stocks, but the process will be painful.

On Tuesday, Wall Street's "big short" and Morgan Stanley analyst Michael Wilson wrote in a report:

As the Federal Reserve/FDIC bailed out the banking system, many investors are asking if this is another form of quantitative easing and therefore “risk taking.”

We believe this is not the case, as tightening credit conditions are squeezing economic growth, which could instead represent the beginning of the end of the bear market.

Wilson also pointed out:

Until the equity risk premium rises to 400 basis points from the current 230 basis points, the S&P 500 will remain unattractive.

The final phase of a bear market can be vicious, with stock prices falling sharply as equity risk premiums soar, which is difficult to defend against in an individual portfolio.

It is worth mentioning that Wilson is one of Wall Street's most determined short sellers. He accurately predicted the U.S. stock sell-off and the rebound in October last year.

Credit tightens sharply, growth deteriorates significantly

The collapse of Silicon Valley Bank and a sell-off in Credit Suisse shares have raised concerns about the health of the global financial system and rattled markets as investors assess the impact of UBS's agreement to acquire Credit Suisse and await the Federal Reserve's interest rate decision on Wednesday.

Wilson believes this is exactly how a bear market ends - an unforeseen, hindsight-obvious catalyst that forces market participants to acknowledge what has been right in front of them all along.

The ongoing turmoil in the banking system has investors focused on the deteriorating growth outlook amid restrictive credit conditions, and events over the past week mean that the risk of a credit crunch has increased significantly. This could be the catalyst that finally convinces market participants that earnings expectations are too high.

Additionally, Wilson noted that as earnings season approaches, analysts will slash earnings expectations and companies are preparing to slash their earnings outlooks.

He recommends investing in defensive and low-beta sectors and stocks, while warning that large technology companies could also be affected by growth concerns.

Wilson is not the only analyst predicting tough times ahead for the market, with JPMorgan strategist Marko Kolanovic also warning that the risk of a "Minsky moment" is rising and the first quarter will be the high point for U.S. stocks this year.