Evercore warns that SVB fallout will force a new market low

Evercore ISI compares the banking stress to another critical time on Wall Street: the year of the savings and credit crunch and epic crash.

“To think that 24 hours later financial stress of this kind will develop in the system [Fed] Chairman Powell suggested he might live to be 50 [basis points] on the 22nd just tells you how extremely uncertain the environment is,” the company’s senior managing director Julian Emanuel told CNBC’s Fast Money Monday.

In a note Monday, Emanuel highlighted a striking comparison to the collapse in two-year Treasury bond yields following Friday’s 1987 collapse of the Silicon Valley bank.

He noted the three-day rate of change in the 2 year yield fell from a high of 5.08% to a recent “low” of 3.99%.

“This decline is one of the fastest on record, only being achieved in 1987 when Greenspan introduced the ‘Fed Put’ that affirmed the provision of ‘unlimited’ liquidity and cut interest rates by 75 basis points during and around the 1987 crash ‘ he wrote to clients on Monday.

Emanuel suggests more trouble lurks — particularly if the Federal Reserve continues to raise interest rates.

“If what we’ve seen is the first shot across the bow in terms of the impact of tightening, we’re going to have a recession,” he told CNBC’s Melissa Lee and traders.

His forecast calls for a mild recession and a retest of last October’s market low.

“Part of the endgame is that we want to see enough of a downturn to make stocks attractive,” Emanuel said. “But we’re still a long way from that.”

Emanuel is sticking to his S&P 500 year-end target of 4,150 set in December. It reflected a gain of about 8% from Monday’s close.

“The next thing we really need to be aware of is how credit is traded in general,” Emanuel said.

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