Evercore Strategist Predicts Continued Market Gains Due to Missing Recession Signals
New York, Tuesday, 16 December 2025.
Evercore ISI projects an 8.5% S&P 500 rise through 2026, arguing that despite high valuations, the systemic forces that typically trigger bear markets are currently absent from the financial landscape.
Analyzing the Fundamentals of the 2025 Rally
Julian Emanuel, the head of derivatives and quantitative strategy at Evercore ISI, maintains a reasonably bullish stance for 2026, setting a price target for the S&P 500 that is approximately 8.5% higher than current levels [1]. His optimism is underpinned by a convergence of favorable factors, including global economic growth, fiscal and monetary initiatives dubbed “One Big Beautiful Bill,” and the momentum of the “ongoing AI revolution” [1]. While acknowledging potential risks, Emanuel argues that the market currently lacks the specific “rally killers” that historically terminate bull runs [1].
Valuations: A Historical Contrast
A central pillar of this analysis is the distinction between current valuations and previous market bubbles. While the S&P 500 has climbed 25% in 2025, suggesting a stretched market to some observers, underlying earnings tell a different story [2]. During the dot-com bubble, infrastructure giant Cisco Systems traded at 130 times forward earnings; in stark contrast, today’s AI bellwether, Nvidia Corp, trades at 26 times forward profits [1]. This means the valuation multiple for the era’s leading tech stock is 5 times lower than that of its dot-com counterpart, suggesting that current market capitalizations are far better supported by actual corporate profits [1].
The Mechanics of Market Concentration
The reliance on major technology firms remains a defining characteristic of this economic cycle. The cohort of largest tech companies—comprising Nvidia, Apple, Microsoft, Alphabet, Amazon, Broadcom, and Meta—now accounts for 36% of the S&P 500’s total market capitalization [1]. More importantly for the sustainability of the rally, these firms are not just passive heavyweights; they generate 26% of the index’s profits and are forecast to contribute a staggering 46% of the benchmark’s earnings growth in 2026 [1]. This data supports the view that the rally is driven by fundamental earnings power rather than speculative fervor alone.
Monetary Policy and Macroeconomic Headwinds
Despite the equity market’s strength, the macroeconomic environment presents complex challenges as we approach the end of 2025. On December 11, the Federal Open Market Committee voted to lower the benchmark federal funds rate to a range of 3.5% to 3.75%, signaling a shift in policy aimed at stabilizing the labor market [2]. However, the bond market has reacted with caution; long-term bond yields have risen to levels last seen in 2009, driven by investor concerns over entrenched budget deficits and sticky inflation [3]. This divergence between equity optimism and bond market stress highlights the nuanced landscape investors must navigate.
Strategic Outlook for 2026
Looking ahead to 2026, investors should anticipate a shift in market texture. While the “buy-the-dip mentality” remains strong, Evercore ISI forecasts a significant increase in market volatility next year, driven by high tech valuations and geopolitical uncertainty [1][2]. To navigate this, Emanuel advises a tactical approach: “stay invested in the AI revolution, buy stocks when VIX is high, buy options [for downside protection] when VIX is low” [1]. This strategy acknowledges that while the structural bull market remains intact, the path forward will likely be less linear than the strong returns witnessed throughout 2025.