Evercore ISI Senior Managing Director Julian Emanuel joins Yahoo Finance Live to discuss the outlook for the bear market, the zero-COVID policy in China, and investor sentiment.
SEANA SMITH: It's been a wild day for the markets on the heels of the October jobs report. You can see gains across the board. Dow now up 312 points. Was up just around 600 points at the highs of the session. S&P also holding onto gains, as well as the NASDAQ. Investors encouraged by the uptick that we saw in the unemployment report.
So here to talk about how the equity market is looking at this and what this could mean for the last couple of months of the year, we want to bring in Julian Emanuel, Evercore ISI senior managing director. Julian, it's great to see you. So I guess just your takeaway from the jobs report and kind of the wild action that we've seen play out in the market today.
JULIAN EMANUEL: Really an extraordinary day, in every respect. And I think that if you had asked most investors how the market would react, given today's numbers, they would have said a strong rally would have been last on their list of outcomes. For us, this is a process. It's not that the market is getting comfortable with where the Fed needs to go. That's going to be difficult to play out.
But what we've really seen was a geopolitical boost here that is helping to turn sentiment and we think kick off the next leg of this bear market rally. The news out of China really quite good, that they're going to advance the dialogue at some point over the weekend towards the zero-COVID eventual reopening. And then Xi's comment about not wanting to see any sort of nuclear weaponry used in Europe really, really helps at the margin to do some de-risking to the European situation. Very positive.
SEANA SMITH: Yeah, so Julian, when you take a look at that, the fact that you see that this could potentially be the next leg of the bear market rally, how high do you think we could potentially hit?
JULIAN EMANUEL: So, basically, we've done a lot of work on what bear market rallies tend to look like. Now, the starting point for this one, at the trough on October 13, was down 27 and 1/2%. When you get a bear market rally, starting from that deepest selloff, the average tends to be up around 17 and 1/2% from that level. So this rally could carry all the way to 4,000. But there's another added aspect to it, is that the seasonality, not only the fourth quarter, but the tendency for stocks to do well after the midterms and into the following year is very, very strong.
RACHELLE AKUFFO: So then, Julian, in terms of the minds that you should have, if you have a shorter investing time horizon versus a longer one, how should you be approaching the markets right now?
JULIAN EMANUEL: Well, if you have a shorter time horizon, you really, really need to trade smaller positions, give them a lot more leeway. And from our point of view, this is a situation where you want to be selective buyers of value type stocks. We've seen a lot of pain in the growth space over the last couple of weeks. The earnings season has not been kind in general to FAANG. But value stocks in a high inflation environment and a high interest rate environment tend to do well. They've outperformed this year. We think that continues to be the trend.
RACHELLE AKUFFO: And as you look at the rest of the earnings season, what are some of the bellwether companies that you're going to be keeping an eye on that will really give you a gauge of how you think the economy is faring, or at least, how investors think the economy is faring?
JULIAN EMANUEL: We've really seen the majority of reports. And this is one of these seasons, not unlike the season in July, where you don't really want to say this stock means this to the economy because, frankly, the story from an economywide perspective has been extremely complex. What is interesting and notable for us, though, when you think about the progression of this earnings season, is that we got the downgrades to earnings expectations that we thought we would get.
In fact, bottoms up consensus is still about 6% or 7% above where our next year estimate is. But recently, the last several days, those earnings downgrades have started to flatten out. And that alone, regardless of the kind of commentary you'll hear in the last couple of weeks from the tag ends of reports, is likely to support equities.
RACHELLE AKUFFO: All right, always great to get your insights, Evercore ISI senior managing director, Julian Emanuel. Thank you so much for joining us. Have a great weekend.
JULIAN EMANUEL: Thank you.