I doubt most readers need another point/counterpoint exercise around what Deutsche Bank described this week as the great “liquidity scare” bear case.

But not needing something isn’t the same as not wanting it, and I can say, from extensive experience, that in the post-Lehman era, there’s no such thing as “too much” when it comes to analyzing the relationship between liquidity and equity returns.

Earlier this week, I sketched the contours of Deutsche Bank’s assessment which, for those who missed it, essentially argues that the relationship between liquidity and stock returns isn’t as reliable as that between the fundamentals and equity performance. In short, the bank’s Parag Thatte isn’t buying the liquidity bear case.

But, as noted Wednesday, the math itself is malleable to the extent you can make the numbers say anything you want depending on measurement windows, what you use to proxy for fundamentals and liquidity, and so on.

With that in mind, Morgan Stanley’s QDS team notes that there has indeed been a “strong relationship between the rate of change on bank reserves and the rate of change on the S&P 500 over time.” Specifically, a $100 billion decline in reserves can be associated with a 1.5% decline on the S&P.

The bank’s rates strategy team expects reserves to decline by around $550 billion through year-end (in no small part due to the well-documented deluge of T-bill issuance at the heart of the liquidity drain bear case). The implication: A possible “high-single-digit decline” for US equities “based on [the liquidity] dynamic alone.”

Of course, the liquidity story goes beyond the relatively narrow dynamics associated with the TGA rebuild. I’ve been over the global story in these pages time and again, and regular readers will recall that Morgan Stanley’s Mike Wilson was among those who attributed stocks’ rebound from the October lows to a net global liquidity impulse, as factors including BoJ bond-buying and PBoC lending helped offset Fed QT. Then, in March, the expansion of the Fed’s balance sheet in the wake of SVB’s failure probably gave some investors the “wrong” idea.

Going forward, it’s a different story entirely, though. And US equities are headed into the back half of the year detached from flatlining YoY M2 growth.

Although you can make a similarly compelling chart using the YoY comparison with ISM manufacturing (i.e., the “fundamentals”) that won’t help if you’re a bull — in fact, it looks even more ominous for stocks.

Wilson underscored the liquidity point in his latest. “While increased liquidity from the Fed/FDIC to deal with March’s regional banking events and deposit flight [was] far from a traditional QE program, we do think it has provided some lift to the S&P 500 that would not have been there in the absence of these emergency actions,” he said. “The irony of the bank stress is that it has kept asset prices higher than they would have been otherwise.” (Another, related, irony is the vol-suppressing effect from the dispersion catalyzed by the bank drama.)

Wilson went on to caution that the global liquidity backdrop is likely to be more challenging headed into H2. “Given the tight relationship between the S&P 500 and the rate of change on global M2, this could prove to be a key variable in our tactically negative view for the US equity market,” he wrote, adding that currently, the S&P is “trading rich to the rate of change on global M2.”

Suffice to say this bear case (the “liquidity scare” narrative) is considered valid until proven otherwise.