Trading Nation

Market bull Julian Emanuel sees rising Treasury yields accelerating a major leadership change. Here's how to play it.

This 'catch-up trade' may thrive as Treasury yields rise
This 'catch-up trade' may thrive as Treasury yields rise

While rising Treasury yields create jitters on Wall Street, BTIG's Julian Emanuel is seeing opportunities.

The firm's chief equity and derivatives strategist said Monday he thinks economically sensitive stocks, cryptocurrencies and overseas markets, particularly China, will get a boost.

"There's a large subset of China ADRs [American depository receipts], some of which are levered to the financial sector, that have really shown a very close correlation to Chinese yields, which are rising alongside the U.S.," Emanuel told CNBC's "Trading Nation."

The benchmark 10-year Treasury Note yield on Monday hit a fresh one-year high around 1.35%.

"This is the environment where that catch-up trade is going to show its ability," Emanuel said.

But it's not just unloved areas of the market. Emanuel sees rising yields making cryptocurrencies even more attractive.

"You're coming from such a low absolute level of rates that higher rates actually is likely to be supportive for alternatives like bitcoin," said Emanuel, who also suggested they're most suitable for those with iron stomachs due to intense volatility.

For investors who want to take the more traditional route, he recommends economically sensitive stocks, particularly in financials and energy.

"It is a question of broadening our horizons because of rates rising to more than just the large cap tech stocks that have led for so long," he said.

Emanuel predicts growth stocks, including Big Tech, will continue to fall out of favor as the rotation into cyclicals picks up momentum. He expects algorithmic computer trading to exacerbate the turbulence by piling on to the downward pressure and accelerating losses.

On Monday, the tech-heavy Nasdaq fell almost 2.5%. The index is now almost 5% off its record high.

However, Emanuel sees pullbacks as major entry points.

"Now it's a broader, more inclusive rally, and we think ultimately that's a positive for the markets. But there's going to be likely a period of indigestion straight ahead," he said. "You could see a drop of over the next little while of perhaps 10% to 15%."

Emanuel has a 4,000 year-end S&P 500 target, which implies a 3% increase from Monday's close.

"The rise in yields is a confirmation that we're going to get a strong economy — perhaps even stronger than expectations," Emanuel said. "Not only is it going to be for the U.S., but it's likely to be the rest of the globe, as well."


If rising Treasury yields spark a market pullback, BTIG's Julian Emanuel says buy cyclicals
If rising yields spark a pullback, BTIG's Julian Emanuel says buy cyclicals