The Fed Hikes Rates

SPEAKER_1 (0:02)

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Tom Keene (0:27)

The swirl, folks, is from another time and place. And for all of us with gray hair, including Julian Emanuel, Evercore ISI with us, I got eight ways to go to start this off. And I'm going to start with ECB raising rates, this country, the Damien Sassell world raising rates, the United States of America raising rates, and London just said no. The city just said no. The Bank of England just said no.

The dynamics now harken to tensions of long ago. Should equity investors be worried about these new tensions?

Julian Emanuel (0:59)

Well, look, the data tells a story. When global central banks are hiking, stocks have a more difficult time. The bull doesn't die, and we don't think it dies now.

But the road ahead is bumpy, and look, we've had convergence, divergence around central bank trajectories for a very long time now, and it's more rare that like a Japan and the US would be on the same trajectory.

Tom Keene (1:31)

Is this a different Thursday morning for the big banks of America?

Julian Emanuel (1:36)

It is, it is, and if you actually look at it, the big banks outperformed massively until several weeks ago, and have been correcting, because frankly, when you look at trading volumes, they've been off. But again, you know, when we think about where the Fed is taking us, as we heard at the top of the hour, credibility has been restored, and you cut off the concept of 6% or 7% on a 10-year yield, which clients had been discussing with us over the last week or two.

Paul Sweeney (2:14)

How did that happen? Why is that the case?

Julian Emanuel (2:16)

It just, you know, fear that they wouldn't, you know, really address the concept of the 2% inflation target, and we're here, and he's serious.

Paul Sweeney (2:29)

So again, we've got the market futures, equity futures, trading up this morning. Is that a reflection of, okay, we have a little bit more confidence in this Fed, do you think?

Julian Emanuel (2:38)

Yeah, absolutely, and so, again, for us, the most important feed-through for the last number of months has been the 10-year yield. Oil pressuring the 10-year yield, 10-year yield pressuring the ability for hyperscalers to issue debt, okay?

You've sort of got the release valve here. That's why stocks are doing better. That's why long-end yields are lower.

Tom Keene (3:02)

Right.

Paul Sweeney (3:03)

Looking at Brent, Tom, sitting right at $100 a barrel.

Tom Keene (3:05)

It's come back. This is very important, folks. I think this is, my two cents, folks, worth not even one cent, is that a lot of the move this morning is with the oil pullback, and that's the Saudi news on the pipeline.

Paul Sweeney (3:18)

Yeah.

Tom Keene (3:18)

You know, it's a jumble. Like I said, it's a swirl. Okay, thanks for emailing in. Barack Hurvitz, Michael Chu and Steven Vandozzi email in and say, start the interview on the acclaimed Julian Emanuel earnings report that those three guys do all the work on.

Are we going to have a redux of the last earnings season, OY's one?

Julian Emanuel (3:37)

No, we're not going to, because think about it.

We're in the 40s, maybe close to 50% year on year growth last quarter. So that was peak.

Tom Keene (3:47)

I'm sorry, split the difference, 18%.

Julian Emanuel (3:51)

So big, you know, look, it's going to be another amazing quarter, but that was peak rate of growth and peak surprise. And that's one of the reasons the market has been as choppy as it's been for the last month or so, is because investors are digesting the concept that you've reached peak, but they're transitioning to the message that even if that was peak, we're still at a fantastic earnings driven, you know, growth trajectory into 2027

Paul Sweeney (4:21)

So can equity markets perform here if your 2027 outlook is a more pedestrian low double digit kind of earnings that is still by historical standards excellent, but relative to what we've seen this year, difficult? Can the market perform in that kind of outlook?

Julian Emanuel (4:38)

Yes, and the reason is because we have been discounting this for months now.

Paul Sweeney (4:43)

Okay.

Julian Emanuel (4:44)

So in my time of being a strategist, we have never had a year like this year where we've taken our earnings numbers up as aggressively as we have, lagging the brilliance of this trajectory, but haven't changed our price target. The compression has happened.