Julian Emanuel on Earnings Rally, Policy Uncertainty, and Market Outlook

Record Earnings and Market Rally

• 💡 The earnings rally in May was historically a massive blowout, driven partly by front-loading against tariffs.
• 📈 Following a period of record bearishness and volatility, a rally of over 20% from trough to peak has occurred.

Policy Uncertainty and Market Pause

• ⚠️ The current policy uncertainty, coupled with a 23x earnings multiple, suggests a pause in the market rally is likely.
• 📌 Despite this, the belief is that the market does not need to revisit prior lows.

Economic Outlook: No Recession Expected

• 🚀 The structural bull market, which resumed at the April low, is supported by AI having a two-year runway.
• 🚫 There is no expectation of a recession, as confirmed by Ed Edelman's team.

Trade Policy and Tariffs

• 📊 A recent court ruling reduced the globally weighted tariff rate to 6%, but further friction with China and new tariffs on EU steel and aluminum are creating uncertainty.
• 📈 These actions could push the tariff rate to over 10%, potentially closer to 15%, with potential workarounds if courts rule against them.

Inflation and Fed Policy

• ⚠️ While some recent numbers sounded stagflationary, there's a push-pull between growth and inflation, with inflation likely to be elevated in the coming months.
• 📉 The labor market has not yet broken, and any inflation bump is expected to cool demand enough to be self-regulating.
• 💰 The view is that the Fed will cut rates twice between now and year-end, especially after policy uncertainty and the "big beautiful bill" subside, which is expected to put a floor under long-term yields.