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Sunday, May 22, 2022

The market will break out of slump due to peak inflation, predicts Evercore ISI

The market slump may be in its last turn.

According to Evercore ISI’s Julian Emanuel, stocks should start grinding higher due to peak inflation.

He cites a positive trend going back to the last time stocks and bonds fell together: 1994.

“The market just kind of digested it, and there was a lot of sideways cap,” the firm’s senior managing director told CNBC’s “Fast Money” on Monday. “There was a lot of clumsiness.”

This paved the way for an epic market outbreak over the next four years.

“At the end of the day, earnings carried the day,” Emanuel remarked. “This is what we see when we think of ’22 and ’23, because we do not think there is going to be a recession.”

Emanuel sees that the benchmark for 10-year treasury note returns ends at 3.25% this year. Yields kicked off at 2.85% this week, reaching the highest level since December 2018.

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The market bull expects strong consumer spending to boost the economy.

“Margins per balance did not shrink because the price power was there,” Emanuel said.

Yet Wall Street optimism is at a 30-year low.

Emanuel refers to the latest AAII investor sentiment survey. In the week ending April 13, Bears outscored the Bulls by about three to one. Emanuel sees the results as an important contradictory indicator.

“It’s a matter of being able to manage by what’s already in the price from an asset market perspective,” Emanuel said. “As difficult as the external conditions abroad were and certainly now slowing in China, the American consumer is still intact.”

As the Street gets deeper into the earnings season, he doubts that corporate America will provide inflation prospects.

“You’re not going to hear it from companies. They do not have to take that risk lead weight,” Emanuel said. “We do not think they are going to be very, very careful because they really did not see the evidence concretely themselves.”

Emanuel has a 4,800 year-end target on the S&P 500, a jump of 9% from Monday’s close.

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