Amidst negative investor sentiment and Bank of England’s promise to pour money into the bond market, Julian Emanuel of Evercore ISI says equities will see another bear-market rally soon. The remarks came in an interview with the “What Goes Up” podcast, the highlights of which are recapped in an article in Bloomberg.
In reflecting how the UK market is affecting global markets, Emanuel said that the strength of the dollar is causing the swift monetary tightening that’s happening around the world. That’s spilled into the UK, which has undergone enormous upheavals in the last month with the death of Queen Elizabeth II, which followed on the heels of a new prime minister and government being installed. All of those challenges are putting even more pressure on an already-volatile market across all assets in the UK.
Meanwhile, in the bond market, volatility was being driven by a policy mismatch between Prime Minister Truss’s new government and the chancellor of the Exchequer, Kwasi Kwarteng, almost to the point where some were wondering if the UK was on the verge of becoming an emerging market, Emanuel explains. As the markets become more illiquid, investors are shying away from buying bonds, especially since there’s no sign that inflation in Europe has hit its top. However, there is evidence that it may be getting close to its top in the U.S., Emanuel points out in the interview.
When asked if the big sell-off was over and another bear-market rally was on the way, Emanuel told the podcast that he believes that yes, a rally could happen after the recent lows the S&P 500 hit in September. Sentiment tends to be negative in September with a “back-to-school” mentality, even more so this year as the Fed continues to raise interest rates and the rest of the world is under pressure from the strong dollar. But there are indications that type of activity is unsustainable, Emanuel said, adding that as the yield moves do become more unsustainable, that will result in higher equity prices in the short-term, and quite possibly in the long-term as well.