The market is like a roller coaster: why is Evercore advising investors to "buckle up"?

The S&P 500 index hit all-time highs ahead of Independence Day in the U.S., hitting a record high of 6,284 points. However, Evercore ISI strategist Julian Emanuel warns, "Buckle up, the market is going to get even more unpredictable." Why does he think stocks could come under pressure in the coming months?  

The first half of 2025 has been a roller-coaster ride for the U.S. market, the Evercore strategist notes in his latest research note, which is cited by MarketWatch. According to Emanuel, the S&P 500 index initially rallied strongly after post-election optimism, then pulled back sharply on a wave of trade war fears and the threat of stagflation or recession, before making a meteoric rise to new highs after investor capitulation and the suspension of Trump's duties.

"Like a real roller coaster, the initial acceleration from the bottom was as rapid and volatile as the end of the fall," Emanuel emphasizes. He draws an analogy with last year's July asset rotation and warns that, having reached the top, the market is ready for further mood swings and sudden declines.

Among the fundamental drivers of growth, the strategist highlights a bull market backed by artificial intelligence, but tariff risks remain a counterbalance. Emanuel cites high valuations of companies as an additional pressure on the stock: "A projected price-to-earnings ratio of 24.5 has historically been accompanied by weak returns over the next few years." For example, portfolio strategies open at price-to-earnings multiples above 24 have performed +2-3% for the year, and often turned out to be unprofitable two to three years later. In contrast, periods when the multiple held in the range of 8-12 or below 8 produced double-digit average annualized returns as high as 12-16% per year over a horizon of five years or more. This underscores the high probability of a volatile pullback in the near term and the moderation of medium-term expectations at the currently fixed multiple level.

At the same time, analyzing six instances of a technical bear trend (collapse of more than 20%) without a recession since 1960, Emanuel states that after each one, stocks rallied an average of another 26% in the 18 months after setting new highs. "A rally does not preclude volatility - during the upswing, there can be drops of -7.5% to -15.1% before the 'final peak,'" the strategist notes. And although Evercore forecasts that the S&P 500 could reach 5,600 points by the end of 2025, Emanuel remains cautious: "With this combination of factors, there is long-term upside potential, but the path to it will be winding and nerve-wracking."

This article was AI-translated and verified by a human editor