LONDON — Global investors are looking for an “excuse” to sell their equity portfolios, and they may finally have a concrete reason to do so, notoriously bearish strategist Albert Edwards said in his most recent note to clients.
Writing on Wednesday, the Societe Generale strategist argues this week’s move above 3% in the US 10-year yield— for the first time since 2014 — could be the catalyst required for a big sell-off. Stocks in the US sold off more than 2% Tuesday after the breach.
“Equities are looking for an excuse to sell off and the current rally may abruptly end for any number of reasons,” he wrote. “Perhaps the greatest near-term threat to the stability of the equity markets is seen as the recent surge in bond yields.”
Edwards’ note, which appears to have been written before Tuesday’s move beyond 3%, continued: “Although I personally do not think it likely that US bonds can break much above 3%, if at all, I discount nothing given the clear ‘end of cycle’ cyclical pressures that have built up.”
After citing the analysis of a Societe Generale colleague, Edwards concludes: “3% resistance is very strong but if broken, there is big trouble afoot!”
Here’s the chart:
The Soc Gen strategist’s thinking is in line with that of legendary investor Mark Mobius, who he cites in his note.
In an interview Financial News earlier this month, Mobius said that he expects a fall of as much as 30% in stocks, arguing that “the market looks to me to be waiting for a trigger that will cause it to tumble.”
In this week’s note, Edwards also extols the benefits of humility, saying: “It’’s good to have a little humility in this business because it’s so darn humiliating when forecasts are proved wrong.”
Edwards then cited a recent comment from a reader after he gave an interview to Barron’s magazine, as an example.
“While even a broken clock is correct twice a day, perhaps in Edwards’ case, we’re talking about a broken calendar on Saturn, which takes about 29 years to orbit the sun,” a commenter wrote.
It is worth taking Edwards’ prediction about the market with a pinch of salt, given his notorious bearishness. In the last month alone he has argued market sentiment is getting overheated and indicating “extreme optimism, if not euphoria,” and predicted an imminent global recession.