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For more on the markets record run, let's welcome in now Julian Emanuel, Evercore ISI senior managing director of equity derivatives and quantitative strategy. Julian, it's good to see you. So let's start with that fed decision, Julian. Plenty of people were surprised that J. Powell delivered that supersized cut. Were you surprised, Julian?

No, we had thought uh 50 all along. And frankly, we were part of the jawboning crowd that was uh uh hopefully pointing them in in the way. And and frankly, when when you think about it, what it is is is recalibrating the dual mandate, right? And if you look at the Fed's projections, the Fed's projections are inflation going lower and actually hitting the 2% target in 2026 and and down to 2.2 in 2025, whereas uh unemployment nudging higher to 4.4%. Um and when you think about it within the context of the fact that we've had 525 basis points worth of tightening since March of 2022. I think the Fed wanted to send a message that it is cognizant of the risks, particularly in a volatile election year. Uh and so uh that's why we started at 50.

And Julian, um interesting that it's, you know, it's sort of achieved this. We're seeing stocks rally today. So what are the remaining risks here? I mean, I know you're you're a bull here. You are expecting the S&P 500 to continue to rally through year end. I believe you're target around 6,000. So but what would be the risks to that scenario at this point?

So taking a step back, we have to acknowledge one thing and this is something that we wrestled with in the beginning of the year, uh Julie, but the market is expensive. It's trading on 24 times trailing earnings. Uh and that is sustainable given the fact that there's a likelihood that earnings growth in 2025 is is going to be as strong, if not stronger, than 2024 and that the other 493 stocks in the S&P 500 are participating. So what what kills a bull market? uh two things. Undue speculation, froth, FOMO, all these things. Frankly, we haven't seen it yet. It's possible that we could start that cycle with what we've seen yesterday and today out of the Fed, but it's too early to really make that claim. Uh the other thing of course is the recession. Uh and again, when you look at the on the ground data, today's weekly jobless claims, the most relevant measure, lower than expected. The economy's in good shape.

Julian, let me ask you another question, which is I'm just curious, how close do you think the Fed is monitoring those financial markets expectations of a cut? I asked Julian because you know, there were some economists I saw heading into the decision. And their argument went like this. They said, we think actually they should do 25, they said, but they were telling their clients, we actually think J. Powell could very well do 50 because he doesn't want to disappoint the market. He doesn't want to wake up and say, J. Powell did 25, disappointed the market, and the market plunge. What do you make of that argument?

So one of the incredible things, and I think part of why the market hesitated at first yesterday in response to 50, is was just the sense of confusion because basically, for the most part, uh certainly going back to last week, although the odds skewed up a little bit more uh coming into yesterday afternoon, it was pretty much a coin flip whether they were going to do 25 or 50. And the market needed to process this message that in fact, no, the Fed doesn't know anything that we know or don't know about economic weakness and that yes, uh we are able to live continuously longer with this sort of data point uncertainty that the Fed has said is part of their decision-making calculus. So you look to November already, two days after the election, and whether they do 25 or 50 is a toss up, the same way it was coming into this one. The market can deal with the uncertainty as long as it continues to see the prospects for earnings growth. Um and you don't see uh you know, the economy turn down in a meaningful way.

There's one other thing I want to ask you about Julian, and that's to what I was talking about earlier, the action in the bond market, right? You have the Fed cutting rates and yet yields going up, right? And you wrote about this a little bit today. Um what do you think is going on there? And then what are the sort of repercussions of that?

We we are not surprised uh by that at all. And in fact, if you look at what we've called the Fed rate cut playbook, it's very typical and all the more so when you think about the fact that the 10-year yield has fallen 100 basis points since the middle of April. And so here we are and there is no recession apparent. Um and there's no signs of stress in the financial system. The economy looks good. uh and in fact, inflation, uh we've had, you know, an extremely beneficial fall in the price of oil and gasoline, but that's now behind us. And then the other aspect of it is is that both candidates policies are likely going to increase the budget deficit. You put that all together and a 10-year yield at 3.6 to 3.7 when the Fed is committed to stimulating uh by cutting rates on the front end is too low in our view. And that's okay.