Evercore strategists have identified several credit market, bond yield and corporate earnings indicators that could signal a broader correction in artificial intelligence-related stocks following last week’s technology sector selloff.
In a research note published on Sunday, a team led by Julian Emanuel said the recent declines marked the beginning of a period of price discovery for AI-related investments, as investors reassessed valuations, financing requirements and the sustainability of corporate spending.
The strategists outlined four market indicators that they believe could signal a transition from the current bull market into a correction, with the possibility of a more prolonged decline if accompanied by an economic recession.
Evercore nevertheless maintained its year-end 2026 target of 7,750 for the S&P 500.
Evercore Highlights Four Market Risk Indicators
Evercore identified four developments that could indicate increasing pressure on the broader equity market and AI-related investments.
The first involves investment-grade credit default swap (CDS) spreads exceeding their March peak of 68.33.
The second concerns high-yield CDS spreads rising above their previous high of 411.04.
Credit default swaps are financial contracts used to provide protection against borrower defaults. Rising spreads generally indicate that investors are demanding higher compensation for credit risk.
The third indicator is a reversal in the upward trend of analysts’ earnings-per-share revisions, which could suggest deteriorating expectations for corporate profitability.
The fourth is an increase in the yield on 10-year US Treasury securities above 5.62%.
According to Evercore, a combination of worsening credit conditions, weaker earnings expectations and higher government borrowing costs could place additional pressure on equity valuations.
Treasury Yield Above 5.62% Could Raise Fiscal Concerns
Evercore’s Washington policy team identified a 10-year Treasury yield of 5.62% as a level that could prompt greater market attention to US fiscal conditions.
The team referred to the recent yield peak of 5.36% and described 5.62% as “a reasonable level at which alarm bells would be expected to ring.”
The strategists characterised such a development as a potential “fiscal alarm bell.”
Higher Treasury yields can increase borrowing costs for businesses and households while influencing the discount rates used to value future corporate earnings.
For technology companies whose valuations depend partly on expectations of long-term growth, sustained increases in bond yields can affect the present value assigned to anticipated profits.
Evercore’s analysis therefore places government bond yields alongside credit spreads and earnings revisions as indicators of potential market stress.
AI Investment Requirements Increase Focus on Debt Financing
The strategists also questioned assumptions that large technology companies, commonly referred to as hyperscalers, could continue issuing debt without significant constraints from financial markets.
Evercore referred to an estimated $1.3 trillion in AI-related investment by 2027, highlighting the scale of financing that may be required to support data centres, computing equipment and associated infrastructure.
The firm challenged the view that companies could maintain borrowing programmes regardless of market conditions, even if their free cash flow became negative.
Evercore described that assumption as “pure fantasy.”
The strategists compared the underlying market expectations with those seen before several previous periods of financial instability, including the collapse of the technology bubble in 2000, the equity market decline of 2018 and Japan’s asset price bubble in 1989.
The historical comparisons formed part of Evercore’s assessment of financing risks rather than a prediction that those events would necessarily be repeated.
Strategists Compare Current Conditions With Previous Market Cycles
Evercore said last week’s decline reinforced the importance of assessing whether expectations for AI investment and corporate growth remain consistent with financial market conditions.
“Last week reaffirmed the ‘this time is no different’ notion amid a perfect storm for the AI bull market, highlighting dividing lines that, if crossed, could tip the bull market into correction, or even bear market,” the team wrote.
The strategists referred to previous episodes in which investor expectations, borrowing conditions and economic developments contributed to significant changes in asset prices.
These included the technology market decline following the dot-com expansion, the 2018 selloff associated with trade tensions and Federal Reserve interest rate increases, and the collapse of Japan’s asset price bubble.
The report also referenced the prolonged period of economic stagnation that followed Japan’s market downturn.
Evercore’s analysis suggests that financing conditions and corporate earnings expectations will be important in determining whether the recent decline remains limited or develops into a broader market adjustment.
Evercore Maintains AI Exposure Recommendation With Hedging
Despite identifying potential risk thresholds, Evercore maintained its recommendation for investors to retain exposure to selected AI-related equities while the specified indicators remain below their warning levels.
The firm described its preferred group of stocks as the “AI class of 2026.”
The strategists recommended maintaining hedges against potential market volatility associated with the November 3 US midterm elections.
The suggested hedging approaches included negative-beta equities, S&P 500 straddles and December Nasdaq-100 put spread collars.
Negative-beta stocks are securities that may move in the opposite direction to the broader market, while options strategies such as straddles and put spread collars can be used to manage exposure to price fluctuations.
These recommendations represent Evercore’s investment strategy rather than an indication that market declines are certain to occur.
Nasdaq-100 and S&P 500 Levels Identified for Positioning
Evercore also identified technical market levels that could influence its recommended investment positioning.
The strategists said investors could consider increasing their equity exposure and removing hedges if the Nasdaq-100 tested its 200-day moving average, which the supplied report described as being around 674.
A corresponding level of 725 was identified for the S&P 500.
These figures are reproduced as stated in the source material, although they appear inconsistent with the prevailing levels of the headline indices and may refer to another measure or require clarification.
The strategists presented the levels as potential points for adjusting market exposure rather than guaranteed indications of a recovery.
Evercore Retains S&P 500 Target of 7,750
Evercore reiterated its year-end 2026 price target of 7,750 for the S&P 500 despite the recent decline in technology shares.
The firm continues to distinguish between near-term market volatility and the conditions that could indicate a more sustained deterioration in the equity market outlook.
Its framework focuses on credit default swap spreads, corporate earnings revisions and Treasury yields as measures of whether financing pressures are spreading beyond individual AI-related companies.
For investors following the sector, the analysis highlights the growing relationship between AI capital expenditure, debt market conditions and equity valuations.