The stock market could retest October lows by midyear as a looming recession hits the US economy, Evercore's Julian Emanuel says

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© MJgraphics / Shutterstock
MJgraphics / Shutterstock

  • Stocks could slide 10% back to October lows over the next three to six months, according to Evercore’s Julian Emanuel.
  • That’s because a recession could strike the economy this year, and stocks have historically bottomed before a downturn.
  • The Fed will keep raising interest rates, Emanuel warned, lowering the odds of a soft landing.

Stocks could fall back to their October lows by midyear as a looming recession is coming for the US economy, according to Evercore’s senior managing director Julian Emanuel.


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In an interview with CNBC, Emanuel warned a recession is imminent this year, and the downturn could cause the S&P 500 to slide 10% back to the 3600 level over the next three to six months. That’s because since 1962, stocks have never bottomed before the start of a recession, he warned.

“The odds of recession, given the collapse in money supply, given the rollover in leading economic indicators, given the 800-pound gorilla in the room – the yield curve –  tell us we’re going to have a recession at some point. And so therefore, we see a retest of the October lows at midyear,” he said.  

The 2-10 year Treasury yield spread – a notorious indicator of recession – has been the most deeply inversion in over 40 years

And while GDP has remained positive overall, economic activity has turned slightly negative in month-per-month terms, according to top economist David Rosenberg, suggesting that the economy is already beginning to contract.  

Emanuel chalked up the current rally in stocks as investors becoming optimistic for soft landing. But that’s unlikely as central bankers will keep on tightening interest rates, Emanuel said, which could mean more downside for stocks. Fed officials raised interest rates 425 basis-points last year to tackle rising inflation, a move that caused the S&P 500 to lose 20%.

Experts say higher interest rates could push the economy into a recession, though central bank officials signaled more rate hikes to come, particularly as the labor market and some inflation indicators remain hot. 

“The Fed’s going to just keep going until something either softens, or invariably, as it has through most of history, breaks,” Emanuel warned. 

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