‘Stress like 1987’: Evercore’s Julian Emanuel warns Silicon Valley Bank fallout could force new market low
Evercore ISI is comparing the bank stress to another critical time on Wall Street: The year of the savings and loan crisis and epic crash.
“To think you would see financial stress of this kind develop in the system 24 hours after [Fed] chair Powell suggested he may go 50 [basis points] on the 22nd, just tells you how extremely uncertain the environment is,” the firm’s senior managing director Julian Emanuel told CNBC’s “Fast Money” on Monday.
In a note out Monday, Emanuel highlighted a striking comparison to the 2-year Treasury Note yield plunge in the aftermath of Friday’s Silicon Valley Bank collapse and 1987.
He noted the three-day rate of change in the 2-year yield fell from the 5.08% peak to a recent “trough” of 3.99%
“This decline is one of the most rapid on record only rivalled by 1987, when Greenspan introduced the ‘Fed Put’ affirming provision of ‘unlimited’ liquidity and cutting rates 75bp in and around the Crash of 1987,” he wrote on Monday to clients.
Emanuel suggests more problems are lurking — especially if the Federal Reserve continues hiking interest rates.
“If what we’ve seen is the first shot across the bow in terms of the effect of tightening, we are going to have a recession,” he told CNBC’s Melissa Lee and the traders.
His forecast calls for a mild recession and retest of last October’s market low.
“Part of the end game is we do want to see enough of a downturn to make stocks attractive,” said Emanuel. “But we’re still a ways from that.”
Emanuel is sticking with his S&P 500 year-end target of 4,150, set in December. It reflects about an 8% gain from Monday’s close.
“The next thing that we really need to be cognizant of is how credit, in general, trades,” Emanuel said.