Evercore's Julian Emanuel warns of FOMO fueling Nvidia rally

Evercore ISI's Julian Emanuel stated in a recent CNBC interview that Nvidia's impressive rally is triggering a fear of missing out (FOMO) in the overall market. Emanuel pointed out that clients, particularly those who lived through the dot-com boom and subsequent collapse, are currently more concerned about being underinvested than overexposed. This sentiment, according to Emanuel, has not been seen since 2021, which he considers to be a potential warning sign.

Caution in the market

In a Sunday note to clients, Emanuel highlighted the similarities to Y2K, particularly in terms of momentum, and identified the excitement surrounding artificial intelligence and the belief that the U.S. will steer clear of a recession as major market catalysts. He cautioned about the excessively bullish sentiment and suggested a shift in focus from reward to risk until there is a cooling off period.

Market performance and projection

Emanuel's caution comes amid the Dow closing at an all-time high and the tech-heavy Nasdaq Composite being up 6% year-to-date, sitting just below its record high. Nvidia, a leading global provider of artificial intelligence chips, has seen a remarkable 46% increase so far this year and a staggering 240% surge over the past year.

Emanuel predicts a potential 13% pullback in stock value this year, which he views as a typical occurrence during a non-recession period. He advised investors to consider lightening their positions if they cannot envision themselves buying at this lower level.

Investment strategy

Despite the caution, Emanuel acknowledged the winning growth trade and expressed favor towards communication services, emphasizing their defensive properties. His top picks also include consumer staples, health care, and money markets, with an emphasis on the 5% return on cash as a viable investment strategy.