logo
'It isn't different this time': Why one strategist sees excessive investor euphoria driving a 15% stock plunge

'It isn't different this time': Why one strategist sees excessive investor euphoria driving a 15% stock plunge

Yahoo21-07-2025
Investors are overly optimistic as earnings season begins, warns Evercore's Julian Emanuel.
The S&P 500 is at a record high, but Emanuel predicts a 7%-15% near-term correction.
Tariff negotiations and growing S&P 500 EPS have already been priced into the market, Emanuel says.
Investors are optimistic as earnings season kicks off — a little too optimistic, according to Julian Emanuel, Evercore ISI's chief equity strategist.
The S&P 500 notched another fresh record high on Monday, and sentiment is skyrocketing as Wall Street banks raise their year-end S&P 500 targets.
However, stocks don't just go up: "Every structural bull market since the late 1990's has seen a late stage surge in capital markets activity and a period of intense investor FOMO," Emanuel wrote in a note over the weekend.
Evercore is remaining cautious, with Emanuel warning of a 7%-15% correction in the coming months. Evercore's year-end target is 5,600.
"FOMO has begun," Emanuel wrote. "Stocks have overdiscounted the potential for continued good news."
Emanuel says old-school fund managers who lived through the dot-com bubble are now asking him the four most dangerous words in investing: Is it different this time? The question is a clear signal that FOMO has kicked in as investors become overconfident and play into the cycle of fear and greed.
There's a lot of froth in the market: crypto is on a bull run as bitcoin hits all-time highs, zero days to expiration options are becoming popular among retail investors, and investors are counting on the AI story to continue carrying stocks higher. But good vibes aren't reason enough for the stock market to continue rallying.
In fact, it's quite the opposite: before the dot-com bubble burst, bulls comprised 75% OF AAII sentiment survey respondents, a level never seen again since.
Bullish investors point to strong economic data and an improving tariff backdrop as drivers for the stock market, but those tailwinds are largely already priced in, according to Emanuel. According to an Evercore survey, a majority of institutional investors anticipate tariff rates to come down from present levels of 22% to below 20% by September.
They also expect S&P 500 EPS to rise above current levels of $264. With expectations already so elevated, it'll be difficult for economic data to continue surprising to the upside. And while there's much market volatility surrounding the idea of Fed independence and Fed Chairman Jerome Powell's future, markets are still pricing in that Powell will remain at his position by year-end.
"Even if there is good news on the tariff front, it is arguably already in stock prices," Emanuel wrote.
"Despite the potential for tariff induced guide-downs and the historical tendency of earnings estimates to fall at this point in the cycle, 67% of investors believe earnings estimates for 2025 will be at or above the current $264 on 9/1," Emanuel added.
With a trailing price-to-earnings ratio of 24.7x, the S&P 500 is trading at the top decile of valuations since 1960. Emanuel doesn't see a market crash in the cards, as valuations haven't reached the dot-com bubble's 28x price-to-earnings ratio.
A near-term pullback is Emmanuel's base case as investors overlook risks associated with ongoing tariff negotiations and the One Big Beautiful Bill posing risks to the bond market.
"The asking of 'The Question' shows scant regard for near-term risks. It isn't different this time," Emanuel wrote.
Read the original article on Business Insider
Orange background

Try Our AI Features

Explore what Daily8 AI can do for you:

Comments

No comments yet...

Related Articles

Federal Reserve likely to stand pat on rates this week, deepening the gulf between Powell and Trump
Federal Reserve likely to stand pat on rates this week, deepening the gulf between Powell and Trump

Washington Post

timean hour ago

  • Washington Post

Federal Reserve likely to stand pat on rates this week, deepening the gulf between Powell and Trump

WASHINGTON — The Federal Reserve is expected to leave its short-term interest rate unchanged on Wednesday for the fifth straight meeting, a move that will likely underscore the deep divide between how Chair Jerome Powell and his chief critic, President Donald Trump, see the economy. The Fed itself, to be sure, is increasingly divided over its next steps, and many economists expect that two members of the Fed's governing board — both appointed by Trump — could dissent on Wednesday in favor of cutting rates. If so, that would be the first time two governors vote against the chair since 1993.

Asian shares mostly slip as focus shifts to US talks with China
Asian shares mostly slip as focus shifts to US talks with China

San Francisco Chronicle​

time2 hours ago

  • San Francisco Chronicle​

Asian shares mostly slip as focus shifts to US talks with China

TOKYO (AP) — Asian shares mostly declined Tuesday as some of the euphoria fizzled out over a tariff deal with Japan as proposed by President Donald Trump, which was followed by a similar deal with the European Union. Japan's benchmark Nikkei 225 slipped nearly 0.7% to 40,725.23. Australia's S&P/ASX 200 lost 0.3% to 8,670.50. South Korea's Kospi was little changed after reversing earlier losses, edging less than 0.1% higher to 3,212.59. Hong Kong's Hang Seng dropped 1.1% to 25,276.36, while the Shanghai Composite shed 0.3% to 3,586.93. Analysts said markets were watching for the latest from Trump, which are now focused on the talks with China. U.S. Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng were meeting in Sweden. Bessent has said the negotiations will likely lead to an extension of current tariff levels. There was no significant new information after the first day of talks. 'Aside from addressing economic imbalances, tariffs are also now well entrenched in the geo-political arena,' Tan Boon Heng of the Asia & Oceania Treasury Department at Mizuho Bank said in a commentary. Last week, Trump announced a trade framework, placing a 15% tax on goods imported from Japan, a level far lower than the earlier 25% rate that the president had indicated. Trump also said Japan would invest $550 billion into the U.S. and open up to U.S. autos and rice. Details are still unclear, but the accord set off some momentary relief. U.S. stock indexes drifted through a quiet Monday after the United States agreed to tax cars and other products coming from the European Union at a 15% rate, lower than Trump had threatened. Many details of the trade deal are still to be worked out, and Wall Street is heading into a week full of potential flashpoints that could shake markets, including an interest rate decision Wednesday by the Federal Reserve. The widespread expectation on Wall Street is that Fed officials will wait until September to resume cutting interest rates, though a couple of Trump's appointees could dissent in the vote. The Fed has been on hold with interest rates this year since cutting them several times at the end of 2024. On Wall Street, the S&P 500 was nearly flat, edging up by less than 0.1% to 6,389.77 and setting an all-time high for a sixth straight day. The Dow Jones Industrial Average dipped 0.1% to 44,837.56, while the Nasdaq composite added 0.3% to its own record, closing at 21,178.58. Tesla rose 3% after its CEO, Elon Musk, said it had signed a deal with Samsung Electronics that could be worth more than $16.5 billion to provide computer chips for the electric-vehicle company. Samsung's stock in South Korea jumped 6.8%. Other companies in the chip and artificial-intelligence industries were strong, continuing their run from last week after Alphabet said it was increasing its spending on AI chips and other investments to $85 billion this year. Chip company Advanced Micro Devices rose 4.3%, and server-maker Super Micro Computer climbed 10.2%. But an 8.3% drop for Revvity helped to keep the market in check. The company in the life sciences and diagnostics businesses reported a stronger profit for the latest quarter than Wall Street expected, but its forecast for full year profit disappointed analysts. Companies are broadly under pressure to deliver solid growth in profits following big jumps in their stock prices the last few months. Much of the gain was due to hopes that Trump would walk back some of his stiff proposed tariffs, and critics say the U.S. stock market looks expensive unless companies will produce bigger profits. Hundreds of U.S. companies are lined up to report how much profit they made during the spring, with nearly a third of the businesses in the S&P 500 index scheduled to deliver updates. In energy trading, benchmark U.S. crude inched up 1 cent to $66.72 a barrel. Brent crude, the international standard, added 6 cents to $70.10 a barrel. ___ AP Business Writer Stan Choe contributed.

Asian shares mostly slip as focus shifts to US talks with China
Asian shares mostly slip as focus shifts to US talks with China

The Hill

time2 hours ago

  • The Hill

Asian shares mostly slip as focus shifts to US talks with China

TOKYO (AP) — Asian shares mostly declined Tuesday as some of the euphoria fizzled out over a tariff deal with Japan as proposed by President Donald Trump, which was followed by a similar deal with the European Union. Japan's benchmark Nikkei 225 slipped nearly 0.7% to 40,725.23. Australia's S&P/ASX 200 lost 0.3% to 8,670.50. South Korea's Kospi was little changed after reversing earlier losses, edging less than 0.1% higher to 3,212.59. Hong Kong's Hang Seng dropped 1.1% to 25,276.36, while the Shanghai Composite shed 0.3% to 3,586.93. Analysts said markets were watching for the latest from Trump, which are now focused on the talks with China. U.S. Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng were meeting in Sweden. Bessent has said the negotiations will likely lead to an extension of current tariff levels. There was no significant new information after the first day of talks. 'Aside from addressing economic imbalances, tariffs are also now well entrenched in the geo-political arena,' Tan Boon Heng of the Asia & Oceania Treasury Department at Mizuho Bank said in a commentary. Last week, Trump announced a trade framework, placing a 15% tax on goods imported from Japan, a level far lower than the earlier 25% rate that the president had indicated. Trump also said Japan would invest $550 billion into the U.S. and open up to U.S. autos and rice. Details are still unclear, but the accord set off some momentary relief. U.S. stock indexes drifted through a quiet Monday after the United States agreed to tax cars and other products coming from the European Union at a 15% rate, lower than Trump had threatened. Many details of the trade deal are still to be worked out, and Wall Street is heading into a week full of potential flashpoints that could shake markets, including an interest rate decision Wednesday by the Federal Reserve. The widespread expectation on Wall Street is that Fed officials will wait until September to resume cutting interest rates, though a couple of Trump's appointees could dissent in the vote. The Fed has been on hold with interest rates this year since cutting them several times at the end of 2024. On Wall Street, the S&P 500 was nearly flat, edging up by less than 0.1% to 6,389.77 and setting an all-time high for a sixth straight day. The Dow Jones Industrial Average dipped 0.1% to 44,837.56, while the Nasdaq composite added 0.3% to its own record, closing at 21,178.58. Tesla rose 3% after its CEO, Elon Musk, said it had signed a deal with Samsung Electronics that could be worth more than $16.5 billion to provide computer chips for the electric-vehicle company. Samsung's stock in South Korea jumped 6.8%. Other companies in the chip and artificial-intelligence industries were strong, continuing their run from last week after Alphabet said it was increasing its spending on AI chips and other investments to $85 billion this year. Chip company Advanced Micro Devices rose 4.3%, and server-maker Super Micro Computer climbed 10.2%. But an 8.3% drop for Revvity helped to keep the market in check. The company in the life sciences and diagnostics businesses reported a stronger profit for the latest quarter than Wall Street expected, but its forecast for full year profit disappointed analysts. Companies are broadly under pressure to deliver solid growth in profits following big jumps in their stock prices the last few months. Much of the gain was due to hopes that Trump would walk back some of his stiff proposed tariffs, and critics say the U.S. stock market looks expensive unless companies will produce bigger profits. Hundreds of U.S. companies are lined up to report how much profit they made during the spring, with nearly a third of the businesses in the S&P 500 index scheduled to deliver updates. In energy trading, benchmark U.S. crude inched up 1 cent to $66.72 a barrel. Brent crude, the international standard, added 6 cents to $70.10 a barrel. In currency trading, the U.S. dollar rose to 148.56 Japanse yen from 148.54 yen. The euro cost $1.1600, up from $1.1593.

DOWNLOAD THE APP

Get Started Now: Download the App

Ready to dive into a world of global content with local flavor? Download Daily8 app today from your preferred app store and start exploring.
app-storeplay-store