High Valuations and Renewed Trade Tensions Could Challenge Stocks in the Coming Months
U.S. stocks entered the Independence Day break at record highs, but the journey there has been anything but smooth.
Julian Emanuel, strategist at Evercore ISI, compares the 2025 market path to a rollercoaster — and says equities now sit near the top of the ride.
“The first half of the year felt like weeks when decades happened,” Emanuel wrote in a Sunday note. “We saw an early climb driven by post-election optimism, followed by a steep drop amid trade war concerns and stagflation fears. Then came a swift rebound as investors capitulated and Trump paused tariffs, propelling the market to new highs.”
Now, the question is whether the next leg is another surge—or a fresh descent.
Emanuel sees a tug-of-war between the bullish momentum from what he calls a “structural AI bull market” and the renewed drag from tariff concerns, which flared again as the new week began. Compounding the pressure is stretched valuation: the S&P 500 is trading at 24.5 times earnings, a level historically followed by subpar long-term returns.
“Markets are cresting, and more volatility is likely,” he warns, drawing parallels to last year’s July rotation. “Stay buckled up—the ride promises to get wilder still.”
Still, there may be a silver lining. Emanuel points out that the recent technical bear market—defined by a drop of 20% or more—didn’t coincide with a recession. Since 1960, there have been six such instances, with stocks averaging a further 26% gain over the 18 months that followed new highs.
But the path may remain bumpy. “A rally doesn’t preclude volatility,” he cautions, noting past drawdowns ranged from 7.5% to over 15% before hitting a final peak.
Evercore’s year-end target of 5,600 for the S&P 500 hints at uncertainty. While history points to further upside, Emanuel appears skeptical that this market will cleanly follow that script.
