Evercore策略师：美联储加息概率或上升，美股将现熊市

To begin this hour with stocks holding firm near record highs as tech regains momentum, Julian Emanuel of Evercore writing, even as the long term trajectory of stocks remains higher, a bear market will happen. AI does not negate the cycle. It has intensified and potentially elongated the upside. Julian joins us now for more. Julian, great to see you. Thank you for being here. So let's start there. There is this feeling even among bulls that this is as good as it gets.

That's what we heard, from Nikolai Tangan of, the Norwegian sovereign wealth fund. It sounds like you're kind of in that camp. So I think this is one of these times where given the rally that we've had, given the fact that the AI bull market is about to turn four years old, you have to just sort of step back and understand that these things have time frames. Right? If we we've talked about the comparisons with the late nineteen nineties very often, and and in the the year 1999 prior to the top in y two k, you had a 100% higher in the Nasdaq, but four separate 10% pullbacks at the same time.

If you think about this year, we've had this constant push and pull between AI jitters. We just got through AI jitters in July. And then prior to that, you know, concern about geopolitics. And from our point of view, we think that the market you, said it at the the top of the show that financial conditions are as the loosest that they've been this entire century. We're a little bit concerned about that bit of complacency.

There's a different tone to this market also. I was looking at this report from Bespoke Investment Group last night talking about how the S and P 500 has gone the longest stretch of time without an all or nothing type of rally, sort of an everything going in one direction type of rally or sell off, which is for the longest period of time in twenty five years. I mean, it seems like the sort of pistons firing at different speeds have created a highly unusual market.

Is that bound to break down to something more traditional, or is this the new normal? So so incredibly unusual. You know, so unusual that you actually have this enormous cohort of stocks trading inversely to the S and P 500 on a day to day basis. We coined the phrase negative beta. It's the highest name count in the index. Now it's actually over a 100, since 2001. But in our mind, when you look at how this type of bull market progresses, structural tech driven bull markets, what you do get is is in the final stages an all rise condition to your point.

And if you look at at these couple of weeks off of the situational awareness trough, you did have mag seven software and semis all rising together. That has stopped in the in the last few days, which is part of, why we're a bit more cautious coming into September, which is always challenging. But we do think you will get all rise before this cycle is over. So if you're concerned, what do you do with that? How do you hedge against this?

So, there's sort of three choices here. You know, essentially, you can let your your cash position build. That dampens the portfolio. You can own optionality. The VIX well, where are we now? Fourteen and fourteen and change. See it. It's unbelievably low. It it it But under the hood, it's not. It under the hood, it's not because you have this negative beta effect, and and you've had, you know, just, like, enormous moves in in individual stocks both up and down and up and down essentially in the same couple of months.

And and so for us, you know, index protection is very inexpensive here. You get the Fed. You get the midterms. You get Iran. And, you get given the fact that a lot of people are viewing this earning season as as good as it gets, and we wouldn't argue with that. The thought might be that that would prompt a a correction. Studies show the work that we've done shows that it prompts more volatility. It doesn't prompt the end of the bull, but it does prompt this concern.

And then the last thing is I would say this negative beta, it's just it's it's remarkable, and it's worked well. And there's energy in it, and there's utilities in it, and health care, which has made new highs in recent weeks also in it, it really dampens portfolio volatility. Do you agree with the consensus that the data this week has been so good enough, let's say, not so good, but good enough that the Fed can stay on hold through September.

Well, to to be fair and, again, this is one of these perceptions and which is gonna make Jackson Hole very interesting. I don't know who's going to next call, but there there you go. Got my hiking boots. This this will be interesting because, you know, our call is that they actually will stay on hold in September, but it's not clear to me that what the market is pricing right now is the story that wants the market to take into the FOMC meeting.

As in there's a little bit too much, call it, complacency around the definitive idea that they're not going to hike. So, you know, prediction markets, whatever, the the Bloomberg would show that I think we're at about a 30% chance now. I think we think that's gonna nudge higher between now and September 16, and and that's one of the things that might unsettle markets as well. The game theory of wanting price in hikes without having to do them and hope that the market can do the work for you.

I do wonder, about the idea of rate hikes and why they might be necessary. Beth Hammack has been talking about how they need to act now. And, arguably, based on some of the complacency that you're talking about with the financial conditions index and the leverage that we've seen build up, some people seem to be getting worried that there is this effervescence in markets that needs to be curtailed. The wings of some of the optimism need to be clipped.

Do you see excess leverage starting to build at a time where people haven't had the volatility to sort of naturally wash it out? Well, again, this has been one of these sort of narratives that the market has been able to digest to this point. You know, record issuance, okay, against the backdrop of government bond yields rising, which is causing the price of the record issuance, to have to rise as well. And this cycle is even more unusual, and and I know as a as a watcher of the credit markets in particular, what's fascinating is is that high yield credit is much tighter than investment grade because we know where all the issuance is coming from.

So, you know, our concern, if there was one in particular, would be if the ten year yield started nudging through four and three quarters towards 5% as the thirty year yield has has made new cycle highs. If you look back on this bull market, that's when stocks do face a bit more of a challenge. Just quickly, have you actually reduced your exposure to US equities? No. What so so the here you well, no. But think about it.

Right? And this is the problem that long term investors make constantly. There's a difference between selling and hedging. Okay? And and look. We have been overweight the technology theme the entirety of this bull market, and it didn't feel very good in March, and it sure as heck didn't feel very good until July 29. But part of that is that because it's a higher beta concept and the returns have been outsized, you should spend a little bit of of your money hedging when the market seems complacent.