(Bloomberg) — A crisis in confidence in the outlook for the United Kingdom’s finances was the latest trigger for risk aversion, helping to drag the S&P 500 Index to a near two-year low. But with investor sentiment in the gutter and the Bank of England promising to open the checkbook to support its bond market, could another equity bear market rally be on the cards?

Julian Emanuel says so. The chief equity and quantitative strategist at Evercore ISI joined the “What Goes Up” podcast to talk about how it all makes sense. Below are condensed and lighthearted highlights of the conversation. Click here to listen to the full podcast, or subscribe to Apple Podcasts or wherever you listen.

Q: How important is what’s happening in the UK to global markets?

A: The background here is just to understand, for investors, that the storm that exists in 2022 so far, the dominance of macro needs across all assets, has really been unprecedented. And it really goes back to this idea that after 25 years of quiet inflation, we had a breakout in the readings. That’s more than a year now and it’s clearly interfering with the Fed’s need to get inflation under control by going to this unprecedented level of hiking. We think of the current status as something from that movie “Super Size Me.” You have made three outstanding 75 basis point rate hikes; maybe you will make a fourth in november.

This is the kind of rapid acceleration and aggravation that reverberates around the globe. It is really the conduit that feeds the strength in the dollar into the UK. You’ve had a change of leadership, the death of the queen, a new prime minister, a new government — it’s just a whole lot of huge challenges in a market that was already showing pressure, understandably, since the Brexit vote in 2016. So really, a test of the external volatility bonds across all UK assets.

Q: Is it being assumed that the Bank of England, by promising to buy bonds, is predicting what is to come from other central banks? Eventually will the Fed and the European Central Bank have to come out and say, “Yes, we will also do whatever it takes to keep bond markets under control?”

A: If you go back to the end of last week, it all really started with a point in time, call it Friday [Sept. 23] morning, when someone looked up at the screen and every single indicator, every single asset, every single market was completely red. Whatever it was, indiscriminate selling, that for us was the beginning of this emotional phase. Because it was clear that the policy disagreement between the new Truss government and Kwasi Kwarteng, the Chancellor of the Exchequer, and where the Bank of England felt it needed to go — needs to go, needs to go, and that’s an open concept, which That’s why I keep changing times — that’s what really caused this instability that felt somewhat like there was this idea that the UK was about to become an emerging market. And to see the kind of volatility in the bond markets there that one has seen over time in places like Mexico during crises or Brazil, or going back to the Asian Tiger crisis in 1997. That kind of volatility.

And frankly, because so much of the UK’s debt is denominated in sterling, that’s not necessarily the way it would play out. But even then, the markets have become very illiquid, and people have been very afraid to buy bonds in an environment where there is still no concrete evidence of signs of inflation, especially in Europe. Although that evidence is starting to build quite quickly in the US.

Q: The other big story of the week is that the S&P 500 set new lows for this bear market. Is the persecution selling more and then maybe a bear market rally is there for us?

A: We are feeling so. Basically from our point of view, these types of bear markets – and if you go back to the highs in January – they don’t move in straight lines. And over the past several weeks, in response to this uptick in yields around the globe, it’s been a lot of straight-line downward movement in stocks. And, if you think about it, September: we don’t want to go back to school, we don’t want to go back to the office four or five days a week. The psychology is usually poor every September, but especially this year because you have all this macro uncertainty and a FED committed to hiking rates and really keeping pressure on the rest of the world through the dollar more stronger through the rate-increasing transmission. mechanism. But for us, we started to see signs that this type of activity was unsustainable.

The VIX has started to falter, you’ve seen investor sentiment just as bad as it ever was near the trough in 2009, and near the bottom of the first Gulf War bear market in 1990. And so for us, the those kinds of thoughts. — along with the fact that October is usually a turning point for stocks and the data — and we don’t want to think about medium terms, the year after a medium term is usually good as well. Since we thought the yield movements were becoming parabolically unsustainable, we felt — and we felt — that will translate into higher equity prices, certainly in the short term, maybe even longer.

Click here to hear the rest of the podcast.

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