Stocks could start grinding higher due to peaking inflation, according to Julian Emanuel of Evercore ISI.
He points to a favourable pattern dating back to 1994, when stocks and bonds both declined at the same time.
On Monday, the firm’s senior managing director told CNBC’s “The market just sort of digested it, and there was a lot of sideways chop,” that “Fast Money” “There was a lot of bearishness.”
Over the next four years, it laid the way for a massive market breakout.
“At the end of the day, earnings carried the day,” noted Emanuel. “That’s what we see when we think about ’22 and ’23 because we don’t think there’s going to be a recession.”
The benchmark 10-year Treasury Note yield, according to Emanuel, will close the year at 3.25 percent. The yield began the week at 2.85%, reaching its highest level since December 2018.
Strong consumer spending is expected to boost the economy, according to market bulls.
“Margins on balance haven’t contracted because the pricing power has been there,” said Emanuel.
Despite this, Wall Street optimism is at a three-decade low.
Emanuel makes a reference to the most recent AAII Investor Sentiment Survey. Bears outnumbered bulls by roughly three to one in the week ending April 13. The results, according to Emanuel, are a major contrarian indicator.
‘It’s a question of can you manage through what’s already in the price from an asset market perspective,” Emanuel said. “As difficult as the external circumstances have been abroad and certainly slowing down in China now, the U.S. consumer is still intact.”
He doubts that corporate America would provide inflation forecasts as earnings season progresses.
“You’re not going to hear that from companies. They don’t need to take that risk guidance-wise,” Emanuel said. “We don’t think they’re going to be very, very cautionary because they really haven’t seen the evidence concretely themselves.”
On the S&P 500, Emanuel has a year-end target of 4,800, up 9% from Monday’s finish.
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