March 29, 2023

La Ronge Northerner

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Evercore warns that the SVB fallout will force the new market lower

Evercore ISI compares the pressures of banks to another critical time on Wall Street: the year of the savings and loan crisis and the epic crash.

“To think that you will see financial stress of this kind developing in the system after 24 hours [Fed] Chairman Powell suggested he might go 50 [basis points] On the 22nd, it just tells you how very uncertain the environment is,” the company’s senior managing director Julien Emmanuel told CNBC’s “Fast Money” on Monday.

In a note on Monday, Emanuel highlighted a striking comparison with the drop in the two-year Treasury yield in the aftermath of the Silicon Valley bank crash of Friday, 1987.

He noted that the three-day rate of change in the two-year return decreased from the peak of 5.08% to the recent “bottom” of 3.99%.

“This decline is one of the fastest on record only rivaled by Greenspan by 1987, when Greenspan introduced the “Federal Reserve Mode” emphasizing the provision of “unlimited” liquidity and cut interest rates by 75 basis points in and around the 1987 crash,” he wrote. Monday for customers.

More problems are lurking, Emanuel suggests – especially if the Fed continues to raise interest rates.

“If what we’ve seen is the first blow of the arc in terms of the impact of tightening, we will see a recession,” he told CNBC’s Melissa Lee and Traders.

His forecast calls for a mild recession and a retest of last October’s market low.

“Part of the end game is that we want to see enough pullback to make stocks attractive,” said Emanuel. “But we are still far from that.”

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Emanuel is sticking to his year-end goal for the S&P 500 of 4,150, set in December. Reflecting an increase of nearly 8% from Monday’s close.

“The next thing we really need to realize is how credit is traded in general,” said Emanuel.