Evercore ISI's Emanuel told Bloomberg that elevated yields, competition for capital and geopolitical and political uncertainty could keep volatility high, while the IPO pipeline and financial-sector earnings take on greater importance.

  • Evercore’s Emanuel expects market dips in the fourth quarter amid high oil, elevated yields and competition for capital.
  • He said clients expect a company valued above $1 trillion to go public this quarter.
  • Emanuel identified Muse as a catalyst behind recent pressure on financial stocks.

Artificial intelligence spending is not immune to rising capital costs as long-term U.S. Treasury yields trade at levels not seen in more than two decades, according to Julian Emanuel, Senior Managing Director, Evercore ISI.

In an interview with Bloomberg, Emanuel pushed back on that idea, saying, “It is not going to be different this time.” The question is where the level lies at which higher rates begin to matter, he added.

Emanuel’s comments come as the 10-year Treasury yield climbed to about 5.34% on Thursday, its highest level in 24 years.

$1T-Plus IPO Could Matter For AI

Asked whether he expects a company valued at more than $1 trillion to go public this quarter, Emanuel said yes.

Evercore had debated the issue extensively with high-profile clients and said it expects such an offering to happen. For the health of the AI trade, he said, it is important that the IPO takes place “at a good price.”

Emanuel also linked recent market choppiness with several high-profile IPOs being pulled, making the pipeline an important focus heading into earnings season.

Muse, Banks And Earnings Season

Emanuel said there was no single explanation for the recent weakness in financial stocks, noting earlier concerns around credit quality and software exposure even as capital-markets activity remained strong around midyear.

Still, he identified a more recent catalyst: “a furry little creature called Muse” that investors feared could hurt profit margins.

That makes upcoming bank commentary particularly important, especially around the IPO pipeline, credit quality, and how stocks react to management commentary. “Financials almost never set the tone for earnings season,” he said, highlighting that they will this quarter.

How Are U.S. Stocks Placed Today

U.S. stock futures were mixed on Thursday. Futures tied to the Dow Jones Industrial Average rose around 20 points, while S&P 500 futures rose 0.36% and Nasdaq-100 futures were up 0.8%.

On Stocktwits, retail sentiment for the SPDR S&P 500 ETF (SPY), an exchange-traded fund that tracks the S&P 500 Index, remained ‘extremely bullish,’ and Invesco QQQ Trust (QQQ), which tracks the Nasdaq-100 Index, stayed ‘bullish.’

A ‘New Normal’ For Capital

Emanuel described the current bond backdrop as a “new normal,” contrasting today’s roughly $40 trillion cumulative deficit with around $10 trillion the last time yields were at similar levels.

He also pointed to global competition for capital as countries deal with deglobalization, the need to rearm, and efforts to reorder supply chains, while hyperscalers are seeking funding at the same time.

Evercore is looking for roughly $3 trillion in hyperscaler capital expenditure next year, the Evercore analyst said.

Emanuel said investors should expect dips in the fourth quarter, citing high oil prices, elevated yields, competition for capital, the Iran situation and the midterm elections. 

He also noted that recent midterm elections during the Trump political era had been volatile and said limited Federal Reserve forward guidance adds to the backdrop.

See Also: Synopsys’ Long-Term Earnings Targets Come In ‘Well Ahead’ Of Consensus, BofA Says — Firm Lifts Target By $100

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