Evercore warns SVB fallout will force new market low
Evercore ISI compares the banking stress to another critical time on Wall Street: the year of the savings and loan crisis and the epic crash.
“To think that you would see financial stress of this kind develop in the system 24 hours after [Fed] Chairman Powell suggested he may live to be 50 [basis points] on the 22nd, just tells you how extremely uncertain the environment is,” the company’s senior managing director Julian Emanuel told CNBC’s “Fast Money” on Monday.
In a note on Monday, Emanuel highlighted a striking comparison with the 2-year Treasury yield in the wake of Friday’s Silicon Valley Bank collapse and 1987.
He noted that the three-day rate of change in the 2-year yield fell from a peak of 5.08% to a recent “bottom” of 3.99%.
“This decline is one of the fastest on record rivaled only in 1987, when Greenspan introduced the ‘Fed Put’ confirming the provision of ‘unlimited’ liquidity and cutting interest rates 75bp in and around the 1987 crash,” he wrote to clients on Monday. .
Emanuel suggests more trouble lurks — especially if the Federal Reserve continues to raise interest rates.
“If what we’ve seen is the first shot across the bow in terms of the effect of tightening, we’re going to have a recession,” he told CNBC’s Melissa Lee and the traders.
His forecast calls for a mild recession and a retest of last October’s market low.
“Part of the end game is we want to see enough of a downside to make stocks attractive,” Emanuel said. “But we’re still a long way from that.”
Emanuel is sticking to his S&P 500 target of 4,150, set in December. That reflects an 8% increase from Monday’s close.
“The next thing we really need to be aware of is how credit generally trades,” Emanuel said.