Evercore warns yield-curve inversion risk rising as AI bull market holds firm

Investing.com··US·Read original
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Summary · why it matters

Evercore ISI said the risk of a U.S. yield-curve inversion is increasing as the Federal Reserve's rate-hiking cycle and rising long-term yields pressure the spread between short- and long-dated Treasury yields, while the artificial intelligence-driven stock market rally remains intact. The strategists said the 2-year/10-year Treasury spread had flattened materially, with the last comparable move eventually preceding an inversion in 2022 as the Fed raised rates, and noted that an inverted curve has historically been a leading indicator of recession and equity-market downturns, though timing has varied significantly. Evercore said the average lead time between an inversion and recession has been about 15 months, ranging from five months after the 2019 inversion to 34 months after the 1978 episode, and that 1998 and 2022 produced inversions without an economic contraction. The strategists said inversions historically have been followed by near-term equity volatility and sideways trading but did not necessarily mark the end of a longer-term bull market, pointing to 1998, when a relatively brief inversion was followed by a 22% market drawdown but did not prevent the broader structural bull market from continuing. Despite the risk, Evercore continues to retain long exposure to AI-related sectors including Information Technology, Communication Services and Consumer Discretionary, arguing there is not yet clear evidence of economic damage from higher energy prices or Treasury yields, and recommends a partial defensive tilt rather than abandoning AI exposure, with negative beta stocks serving as a hedge against macro shocks in an AI-heavy portfolio. The note said corporate surveys remained expansionary, jobless claims subdued and credit spreads contained, although oil prices near $95 a barrel and 10-year Treasury yields above 5% remained pressure points.

Impact on assets 3

Financials▲ · 1 stocks
Evercore Partners Inc
EVR
± Mixedrelevance

Evercore ISI is the author of the note warning of rising yield-curve inversion risk while retaining AI-sector exposure; no company-specific financial event.

Artificial Intelligence▲ · 1 stocks
NVIDIA Corporation
NVDA
▲ PositiveDemandrelevance

Evercore retains long exposure to AI-related sectors including Information Technology, implying continued investor demand for AI names like NVIDIA.

Others▲ · 1 stocks
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