Evercore’s Julian Emanuel: Why the S&P 500 Is Heading to 9,000

The stock market is entering a dangerous seasonal transition where the safety net of earnings has vanished, leaving equities fully exposed to a volatile bond market. Julian Emanuel, senior managing director at Evercore ISI, sat down on CNBC recently to warn that a low volatility index is masking systemic risks. By the end of this video breakdown, you will know exactly how to position your portfolio for the upcoming market roller coaster by balancing high growth momentum with highly unconventional defensive assets. Joining us now to talk much more about the risk facing the markets more broadly, let's bring in our Julian Emanuel, senior managing director at Evercore ISI. I don't know if you're ours. I think you're Evercore ISIS. >> Julian, great to have you on. >> Great to be here. >> Let's finish this conversation we were having earlier. I think it's something you want to talk about about Nvidia being an inflection point for the market and you're seeing a lot more risk post Nvidia earnings looking at the VIX only at about 15. You're saying that's a bit low. >> It is definitely low. Look, seasonality aside, we've been talking about it just these last few minutes. This is one of these times where the most important relationship, the most important chart in the world is the 10-year yield. It's not always that way, but this is one of those times because the pressure has been on the bond market because it's going to be very incumbent on yields to remain in check into September when there's going to be renewed issuance. the capital markets, you know, we've taken a couple of weeks here and the capital markets are are going to open up again and there's just going to be lots and lots of issuance not just from hyperscalers, not just from global sovereigns, of course, from the US as well. And all of that feeds into this idea that you are at a potential inflection point where the other part of the narrative is that earning season is over. And earning season, as we all know, has been an incredible catalyst this quarter. Was an even more incredible catalyst uh in in April and May. But that's now behind us. And so what you're left is with is the kind of of uh setup that we've seen several times along this bull market where you're just hanging out with macro risk. >> So Julian, when you have your bullcase of 9,000 by year end, you spend a lot of time on yields there. So I'm going to ask you out of three things or maybe it's a a a three of them, is it earnings, yields, or FOMO that gets us to your bullcase? >> Well, it's definitely FOMO. No question about it. And you know, realistically, when we suggested 9,000 at the end of the year, at the beginning of of this year, um we're not going to get there this year, but we do feel very confident that sometime before this cycle ends, we will get to a number like 9,000 because if you look at these structural techdriven bull markets, whether it was the work from home uh 2020 into 2021 or of course the one that everyone is talking about, which is Y2K, Hey, as a comparative, you always got intense amounts of FOMO, surges in capital market activity, and you know, there are going to be bigger and more significant IPOs ahead of us. >> Okay, so Julian, you're talking about all this FOMO, but at the same time, you're making a call on negative beta stocks. That's not sexy at all. I don't think anybody fears on missing out on negative stocks. Talking about names like McDonald's, PepsiCo. Why put the money there right now? And for a sexy guy, by the way, to be going on sexy with your pics, I mean, >> you would you would be shocked at at the eyeballs at negative beta because, frankly, if you think about it right, part of why you've had the sharp moves from time to time that you've had is because uh essentially people that use hedges, index hedges, lost tons of money owning puts and and gave up on that at the times when it was was necessary. But actually what we found is these negative beta stocks which correlate inversely to the S&P day in and day out are actually a way to get index-like returns and get diversification from the fact that everything looks like the AI trade. Uh you know and we think there's more legs to go there. >> By the way, according to your research, it's like a quarter of the S&P is a negative beta stock. It >> it is it is incredible. But you know, no question. and and we can certainly understand energy and we can certainly understand how there's more software names given how software behaved at the beginning of the year. Less understandable are places like utilities and uh insurance stocks but as we all know financials have been on fire uh this year but they've been more a story about the rise in yield. So, it kind of makes sense that uh on rising yield days when the S&P is pressured, maybe insurance stocks do well. The primary trigger for Emanuel's cautionary stance is the 10-year Treasury yield, which he identifies as the single most critical chart in the financial world right now. During the broadcast, the hosts pointed out that everyone is seeing rising risk in these yields and Emanuel aggressively agreed, noting that the bond market is showing signs of desperation. This desperation stems from a looming supply shock. The capital markets are poised to break their summer silence, unleashing a massive wave of debt issuance. This is not just a routine government refinancing. The market is about to be flooded with paper from global sovereigns, the United States government, and cash hungry tech hyperscalers. If the yield on the 10-year Treasury spike continues unchecked, the valuation multiples of high-flying tech stocks will face intense downward pressure. To understand why this debt issuance matters so much, we have to look at the buyers of this debt and the yield they required to absorb it. When the United States Treasury and Global Sovereigns issue trillions of dollars in new bonds, they are competing directly for capital with the private sector. The hosts pressed Emanuel on how this issuance affects the broader market and he emphasized that September is historically a period where yields face upward pressure as these new supplies hit the tape. My take on this dynamic is that the equity market is currently priced for perfection, operating under the assumption that interest rates will glide downward smoothly. If the capital markets open up and find that investors demand a much higher premium to absorb this avalanche of new debt, the discount rate on future cash flows rises and the entire equity market has to repric. The CNBC anchors highlighted that the CBOE volatility index or the VIX was hovering around 15, a level that many market participants view as highly complacent. Emanuel explicitly called this level too low given the scale of macro risks looming on the horizon. He argued that the market has enjoyed a period of relative calm because the massive buffer of earnings season shielded investors from underlying structural weaknesses. But that shield is gone with the earnings catalyst firmly behind us. Equities are left hanging out with pure macroeconomic risk. I find Emanuel's concern here highly justified because a low VIX acts like a spring being compressed. When a shock finally hits, the sudden unwinding of short volatility positions can turn a standard market pullback into a highly disorderly route. This tension between low volatility pricing and high macro reality was the exact point where the host steered the conversation toward Emanuel's broader long-term forecasts. Everything from here builds on what we just worked out. So like the video, subscribe to the channel, and stay with me. With the immediate macro warning established, the hosts pivoted to Emanuel's highly publicized long-term target of 9,000 for the S&P 500, asking him to break down what actually drives a market to such dizzying heights. Specifically, the anchor asked him to choose between three potential engines: corporate earnings, bond yields, or pure unadulterated fear of missing out, or FOMO. Emanuel did not hesitate. He pointed directly to FOMO as the primary fuel that will eventually propel the index to that 9,000 level. While he conceded that the target would not be met by the end of this calendar year, he expressed absolute confidence that the market will achieve it before this current structural cycle reaches its ultimate conclusion. To support this bold projection, Emanuel drew historical parallels to previous techdriven structural bull markets. He pointed to the work from home surge of 2020 and 2021 and more importantly the Y2K tech bubble of the late 1990s. In both instances, the market experienced a massive self-reinforcing loop where rising capital market activity and high-profile IPOs drew in retail and institutional capital alike. When the host questioned whether this is a sustainable way to build market value, Emanuel's reasoning was clear. structural bull markets always end in a massive blowoff top driven by psychological factors rather than fundamental valuations. He expects a renewed wave of significant initial public offerings to act as the next major catalyst to reignite this speculative fervor. My take on this fomodriven thesis is that it represents a realistic if highly cynical reading of market history. Many analysts try to justify extreme valuations by inventing complex earnings models, but Emanuel is willing to call a spade a spade. He recognizes that once a technological revolution like the current artificial intelligence buildout captures the public imagination. The math stops mattering for a period. The company driving this entire cycle is Nvidia, ticker symbol NVDA, and its earnings have served as the ultimate proof of concept for the entire trade. However, the risk with relying on FOMO to get to 9,000 is that momentum is a fickle master. When the speculative capital runs dry or when the IPO market fails to deliver the highquality merchandise investors crave, the drop can be incredibly swift. This contrast between massive long-term speculative upside and immediate macro danger led the host to ask how an investor is supposed to actually survive the journey. The anchor immediately pointed out the glaring contradiction in Emanuel's strategy. On one hand, he is predicting a FOMO-driven march toward 9,000, but on the other hand, he is actively advising clients to buy negative beta stocks. The host noted that names like McDonald's, ticker symbol MCD, and PepsiCo, ticker symbol PEP, are about as far from a sexy AI trade as you can get, and joked that nobody has ever suffered from FOMO over consumer staples. Emanuel laughed off the characterization, but mounted a highly sophisticated defense of these unloved assets. He asserted that institutional clients are actually paying intense attention to negative beta because they are trying to solve a very specific problem. How to stay fully invested in a structural bull market without getting wiped out by the short-term volatility spikes he expects in the coming weeks. When you are managing billions of dollars, you cannot simply dump all your holdings and sit in cash. If the market rips higher, you underperform and lose your job. But if you hold high-flying tech names and the market drops 10%, you face the same fate. Emanuel's solution is to build a defensive mode using negative beta assets. Because these stocks historically move in the opposite direction of the broader market, they act as a natural shock absorber. Think about it this way. You do not buy car insurance after you have already wrapped your bumper around a light pole. You buy it when the sky is clear, which is exactly what these quiet defensive names represent right now. Where I land on this strategy is that it is incredibly practical. Everyone wants to talk about the massive gains in AI, but very few are planning for the inevitable air pockets. By hiding out in stable, cash generative businesses that pay decent dividends, you keep your capital intact so you can buy the dip when the speculative blowoff finally arrives. It is a barbell approach. You keep your core exposure to the secular growth stories, but instead of surrounding them with highly leveraged cyclical stocks, you anchor them with boring defensive value. This discussion of defensive positioning naturally led the host to press Emanuel on the elephant in the room, the Federal Reserve's next move. The anchor pointed out that the entire bull case for the second half of the year seems to rest on the assumption that the Fed will aggressively cut interest rates to engineer a soft landing. He asked Emanuel if a rate cut would actually be the green light that sends the S&P 500 toward his long-term targets, or if it might signal something far more ominous about the health of the economy. Emanuel's response was sobering. He warned that the market is likely misinterpreting what a Fed cutting cycle actually means. Historically, unless the central bank is cutting rates because inflation has been perfectly tamed without economic damage, a historically rare immaculate conception, initial rate cuts are often a response to deteriorating economic data. Emanuel suggested that if the Fed is forced to cut rates rapidly, it will be because the labor market is softening faster than policymakers care to admit. In that scenario, the immediate reaction in the equity market is almost always negative as investors realize that lower interest rates are a symptom of a weaker consumer, not just a gift to valuations. What I'd watch here is the shifting paradigm of bad economic news. The market has spent 2 years cheering for weak data because it meant the Fed would stop hiking. But we are rapidly approaching the point where bad news is just bad news. Is it really a victory if the Fed lowers borrowing costs because the consumer is finally tapping out? When corporate earnings begin to reflect a slowing economy, no amount of rate relief is going to save valuations that are already stretched to historical extremes. This warning about the broader economy prompted the hosts to look at the market's glaring lack of participation. The anchor asked Emanuel about the fortunes of smaller companies, specifically pointing to the Eyesshar's Russell 2000 ETF, ticker symbol IWM, which has spent years lagging behind its mega cap tech peers. if a true structural bull market is underway. The host asked, "Shouldn't we see these smaller domestic businesses start to participate in the rally?" Emanuel was surprisingly cautious on this front, arguing that small caps are trapped in a refinancing nightmare. Unlike mega cap tech giants that are sitting on mountains of cash, smaller companies rely heavily on short-term debt and floating rate loans. He explained that even if interest rates begin to drift lower, the cost of capital for these businesses is going to remain structurally higher than it was during the post-pandemic era. Until we see a sustained stabilization in the yield curve and genuine economic growth, Emanuel expects small caps to remain a value trap with investors continuing to cluster in the safety of large cap secular growth and defensive staples. What this conversation ultimately reveals is that the path to 9,000 is not going to be a straight line. Julian Emanuel is painting a picture of a market that is structurally poised for massive speculative highs over the next few years, but one that is currently walking through a highly dangerous macro minefield in the near term. The lesson for individual investors is clear. Do not let the long-term optimism blind you to the immediate structural cracks. Balancing high growth exposure with defensive low beta anchors might feel boring when the FOMO is raging, but it is often the only way to ensure you actually have capital left to invest when the market finally reaches its destination. The real test over the coming months will be whether the consumer can hold up long enough for the Fed to pull off its highwire act or if the compressed volatility we are seeing today is merely the calm before a major macro storm. Thank you for watching. If you found this useful, a like and a subscribe to the channel go a long way. See you in the next one.