17% Peak-to-Trough Decline Coming, Evercore Says

• Stocks could see a 17% peak-to-trough fall this year, Evercore’s Julian Emanuel said.
• That decline will come amid a mild recession and disappointing corporate earnings, he said.
• His view runs contrary to others on Wall Street, who see a soft-landing for the economy.

Stocks could see 17% peak-to-trough decline this year, as corporate earnings are bound to fall short of investors’ lofty expectations, according to Evercore ISI’s Julian Emanuel.

The senior managing director of Evercore’s portfolio strategy team pointed to major headwinds that still face stocks, despite investors ‘growing optimistic about rate cuts from the Federal Reserve and the prospect of a soft-landing of the US economy. 

Wall Street consensus is calling for 11% corporate earnings growth in 2024, but that’s high even in the event that the US avoids a slowdown, Emanuel said in an interview with CNBC on Monday, though Evercore sees a mild recession striking the economy sometime in the middle of this year.

“The expectations in general are just absolutely great in terms of inflation coming in, earnings being solid, and growth not disappointing,” Emanuel said. 

Experts have warned of the risk of a recession for months, thanks to the Fed aggressively raising interest rates last year to control inflation. Markets are anticipating five to six rate cuts from central bankers this year as prices in the economy continue to cool – but that could actually be a double-edged sword for stocks, as central bankers have traditionally issued steep rate cuts either right before or in response to an economic slowdown. 

“Frankly, history tells you, you don’t want that to happen,” Emanuel said of interest rate cuts this year. “That happens in an environment where growth disappoints to the downside.”

All that spells trouble for the trajectory of stocks, especially considering that the S&P 500 and Dow Jones Industrial Average have returned to their all-time-highs.

In a typical non-recession year, stocks see a 13% peak-to-trough difference, Julian estimated. That peak-to-trough spread could be even steeper in 2024, with stocks potentially declining 16%-17% from their highs, Emanuel estimated. 

Other voices on Wall Street have been warning of another rocky year for stocks ahead, especially as recession risks remain. One notorious market bear predicted the S&P 500 could fall as much as 65%, even if the Fed pivots to cutting interest rates this year.