Evercore ISI Declares End of Bear Market, Predicts 2026 S&P 500 Highs

Evercore ISI, a leading financial services company, has announced that the bear market in the U.S. stock market has ended, signaling the start of a prolonged and steady bull market. The firm's strategist, Julian Emanuel, compared the recent market volatility to the panic experienced during the 1998 Long-Term Capital Management crisis. However, he noted that the current economic landscape, marked by persistent inflation, a cautious Federal Reserve, and the lingering effects of tariff policies, makes a swift recovery similar to that of 1998 unlikely.

Emanuel pointed out that the decision by Trump to temporarily halt tariff increases on April 9th triggered a buying spree, effectively concluding the -21.3% cyclical bear market. However, he anticipates a gradual recovery process, with the S&P 500 index potentially reaching new highs by 2026. Evercore ISI maintains its year-end target for the S&P 500 at 5600 points, contingent on the final tariff rate stabilizing between 15% and 17%. This rate, while lower than Trump's initial proposal of 80%, remains close to the notorious levels set by the 1930 Smoot-Hawley Tariff Act.

In terms of investment strategy, Emanuel cautioned that valuations remain high, with the S&P 500's price-to-earnings ratio at 22 times, still elevated compared to historical averages. He recommended a tactical allocation strategy, suggesting the purchase of high-quality, underperforming stocks in the communication services, non-essential consumer goods, and technology sectors. Conversely, he advised reducing exposure to high-momentum stocks lacking earnings growth or share buyback support.

The Evercore ISI team also proposed a risk mitigation strategy using September-expiring SPY options, specifically the 615C/530P/480P collar strategy. This strategy involves selling a call option with a strike price of 615, buying a put option with a strike price of 530, and simultaneously selling another put option with a strike price of 480. This approach locks in downside risk between 480 and 530, while capping upside gains at 615. For non-derivative investors, the team suggested taking profits at higher levels and waiting for better entry points.

Despite lingering uncertainties, Emanuel pointed out that key sentiment indicators, such as realized volatility and investor positioning, suggest that the market has experienced a capitulation sell-off. Evercore's latest survey revealed that 81% of clients believe a recession is either already here or imminent, a level of pessimism that often signals a turning point.

In summary, while the storm has passed, the road ahead is long and winding. Investors must prepare for continued volatility, especially considering the pressures from tariffs and inflation, the upcoming U.S. budget debates, and the Federal Reserve's cautious stance. Emanuel emphasized that policy constraints and high valuations mean this bull market will be a marathon rather than a sprint.