Julian Emmanuel

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Last quote by Julian Emmanuel

What's remarkable is this time last week, we were wondering if March was even remotely on the table. To go from wondering if it's on the table to a near certainty is almost unprecedented.
Mar 03 2017
Julian Emmanuel has most recently been quoted in an article called What it means for markets that the Fed wants to raise interest rates now. Julian Emmanuel said, “Basically, stocks and bonds go back to the old types of relationships prior to the financial crisis, and that has been yields rise, equities fall. If the Fed is successful, you are going to change the way people look at stocks and bonds. … That is a source of potential volatility in the months ahead because there's been an entire generation of strategies built on the premise of risk on, risk off. … If this relationship reverts to the way it was in the 1990s, when there was no such thing, that's where you're going to see a potential source of instability.”. Julian Emmanuel has been quoted a grand total of 45 times in 21 articles.
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Julian Emmanuel quotes

In our view, at 19-time earnings, we think it's fully priced in now. We think it could be deeper than the conventional wisdom is because of this newfound optimism and belief that [the Trump program's are] generating growth that is going to cushion the downside. Is a test of the 200-day moving average possible in the next couple of weeks? Absolutely. Is it a buying opportunity? Absolutely.

It's on the table ... if we've learned anything in 2016, it's that anything is possible.

It's extremely difficult to model. It's generally accepted that something like that would cause the dollar to rise, and we would note the dollar has already risen since prior to the election by a degree of magnitude that would imply an earnings headwind of around 2 percent at the S&P 500 level.

The difference between this year and last year is that people are much more comfortable owning stocks with prospects of higher growth out there this year than they were last year.

The temptation is to say that correlation correlates inversely to equity market direction, and I will say in down markets, correlation tends to rise.

But just because dispersion in the market is as great as it is right now, doesn't imminently say we're due for a pause. In our view, what argues for a potential pause in the market is the fact that we're trading 19.2 times 2016 earnings and consensus expects 2017 earnings to grow by 12.4 percent, so there is a very hopeful case priced into the equities market right now.

You're going to see a continued rotation but towards the laggards. You see a lot of them in tech and health care and some of those have lagged since the election in particular. It's probably a less discrete rotation away from the winners and more of a distinct rotation into the laggards.

We think it's going to be a good year for active management next year.

The consumer has really been the engine of the economy. The missing piece has been the corporate side, the industrial side.

The active managers that we speak with who've had their head down for the last several years are for the first time showing smiles on their faces. The game in our view has changed for the medium term.

The change in [market] psychology is very profound ... to us, it's essentially getting away from eight years of worrying about zero interest rates as the guiding principle for alpha generation, for searching for yield and for stock selection, which actually has also led to more passive investment.

Particularly if the focus shifts to Europe, we think that these Trump themes could very well pause here with interest rates arguably up 70 basis points. The rally could very well have been front loaded.

The thought of that ending is really the thing that, for us, has caused a lot of sector rotation. There's been a ton of turn in the market. it's also changed the psychology. … The people we talk to are more engaged in trying to come up with alpha generating ideas more than in the entire period of the post financial crisis.

What's important for active managers, important in that their decisions have been governed and their difficulty in generating alpha in the last four or five years, has been very much a function of the psychological slog of ultra-accommodative monetary policy being the single most determinant of asset prices.

The traditional fourth quarter rally may occur at a later date rather than right after the election.

When the election is as contentious as this one has been with so much back and forth, and the prevalence of the third-party candidate, what our work has shown is the market has tended to trade very indecisively the month before and several months after.

The market is not reflecting the idea that the price of uncertainty should be higher.

Health care has consistently outgrown the S&P 500 over the last four years. Every year, high single to low double-digits earnings growth. If you look at 2017, this is the first year where the consensus believes the broader index is going to grow at a faster pace than health care. We think the consensus is wrong that broader earnings are going to grow 14 percent, but it is reasonable for health care earnings to grow by 8 to 10 percent in 2017.

Health care has $167 billion worth of offshore cash, second only to technology. If that cash is coming home, we could see it finding its way in the normal means we've seen in terms of return to shareholders over the last several years, either by buybacks or increased dividends.

Basically what we've seen is a year of position de-risking in a sector that was, given its earnings profile over two of the most choppy years of earnings growth … a very, very consensus trade coming into the end of 2015. Then all of a sudden the political invective started, from all sides.

Some price regulation is priced in. We all know how difficult passing some type of regulatory reform is going to be in such a bitter and partisan environment in Washington. When we look at it, (the market) is not pricing in, for whatever reason, the potential upside which is derived if you could have politicians that steer you toward tax reform next year.

It's at a valuation discount that exceeds the discount we saw in 1993, 1994 when then President Bill Clinton tried to reform the health care industry unsuccessfully. The effort was spearheaded by then first lady Hillary Clinton.

We're encouraged by the fact that all these indices made highs, but at the same time we think investors are way too complacent about the risks out there right now. Last August, our summer was cut short by two weeks because of China [currency devaluation]. This time, the volatility came meaningfully before the fourth of July, so I think people aggressively seized this vacation season. The true threat coming this fall is the political uncertainty.

The kids don't want to come home from the beach, why should the adults? You come home from the beach and the pricing of the risks are low. The risks themselves have not changed, but summertime complacency has driven the price of risk to near cycle lows. That's in an environment where the risks themselves have only marginally diminished over the last several months and are likely to intensify again as we get closer to the election.

When we look at VIX under 12, and out-of-the-money call options being priced historically high, reflecting this increased risk of missing out on a rally – after we already had a rally – we think people are being too complacent about risk. We're neither calling for a sell-off or an end to the 7-1/2 year bull market. We just think you have to step back and remember that this is a higher volatility environment.

Earnings are coming in better than expected, modestly better than expected, but to us the most hopeful thing we've seen thus far is that revenue has, in many cases, surprised positive.

We do not see in the decline any sign of insipient economic weakness.

When you look at the first five months of the year it has been an emotional roller coaster that has been beset with investor cognitive errors, most glaring of which was discounting the recession that never happened in January and February.

Now cooler heads prevail. I was scared to death telling clients to buy last Friday morning, but we had a very high conviction it was the right thing to do, simply because what we saw led us to believe that even with the surprise outcome, investors were completely over-hedged for the situation.

The voters want change. We're not talking about policy change. We're talking about a businessman with no political experience or the first woman president, so there's going to be change. When you look at all those change election years, once the electorate was comfortable with their ultimate selection, the year following the vote was quite positive. Those years have been positive for technology.

While presidential election years tend to be positive for equity markets - particularly the second six months - returns in the last year of a two term president's tenure (years including the Tech Bubble burst of 2000 and the Financial Crisis of 2008) have been decidedly less robust.

I guess the problem is how do you measure all of this stuff. That is the issue and that goes to the larger issue of GDP. How can it be that the jobs picture and the housing picture and the relative steadiness of confidence translate into this soft GDP? That's the question that's been unanswered.

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