Can the U.S. stock market bull run be stopped? Société Générale's big short sings a different tune: the party is about to end, it's time to exit
Albert Edwards, the short seller from Société Générale, warned that the party in the U.S. stock market may soon come to an end and advised investors to consider exiting. He pointed out that the shift in the yield curve and overly high expectations for the technology sector are the main reasons. Although the U.S. stock market is expected to perform strongly in 2024, with the S&P 500 index rising over 25%, Edwards believes that further increases in yields could impact the stock market, especially the optimistic sentiment in the technology sector that needs to be realized
According to the Zhitong Finance APP, in 2024, the U.S. stock market achieved remarkable success, with the benchmark S&P 500 index rising over 25% year-to-date. Most analysts expect the unstoppable bull market to continue into 2025. However, Albert Edwards of Société Générale, known for his bearish views on the market and economy, has also issued some warnings.
Société Générale's global strategist Edwards stated in a research report last week: "Those skeptics tired of the exceptionalism of the U.S. stock market can draw strength from some signs indicating that the party is about to end, and it's time to exit."
The long-time bear emphasized that the end of the yield curve inversion and the enormous expectations for the high-tech sector are the two main reasons for his belief.
Edwards noted: "The yield curve between the 10-year and 2-year U.S. Treasury bonds has now turned positive, as has the yield curve between the 10-year Treasury and the 3-month Treasury. The inversion of the yield curve may be an early signal of an impending recession, but if the inversion ends, it's like the starting gun has gone off."
The strategist added: "One factor that could 'burst' the stock market bubble is a further rise in U.S. bond yields. The last time U.S. stock market price-to-earnings ratios reached such high levels was in 2021, when the 10-year U.S. Treasury yield was 1%. With the 'Ice Age' of bond/stock correlation inversion now over, any further rise in yields will pose problems for the stock market."
As for the technology sector, Edwards stated: "The U.S. technology industry is burdened by heavy optimism, with future earnings expectations far exceeding the lagging reality. U.S. tech companies now must deliver on this optimism."