In Albert Edwards' latest research note from Société Générale, titled "Buy the dip or jump off a sinking ship?", he discusses the current market turmoil and its potential implications. Edwards highlights several factors contributing to the recent market downturn and draws parallels to past market crashes. His conclusive remarks suggest caution, pointing out that the downturn in analysts' optimism on tech profits could lead to further market declines.
Here are three nuggets from Albert Edwards relevant to his conclusive remarks:
1. "The immediate trigger might have been fear of recession (unfounded or not), but the three other factors then ganged up to form a merciless lynch mob. It is all very reminiscent of the events I witnessed first-hand in the October 1987 crash"1.
2. "Typically, when EPS optimism starts to slide, tech stocks lose momentum and fall below their 200-day moving average - with the subsequent undershooting at least proportionate to the previous overshoot"1.
3. "The equity market does not usually diverge from recessionary Kansas City Fed labour market data,... but it has done so since the AI euphoria on the November 2022 ChatGPT launch. But now that EPS optimism is receding, we'll soon find out who is swimming naked - 'Don't Look Ethel' "1.
Edwards' view is that the current market conditions are precarious, with historical parallels suggesting potential for further declines, especially as earnings optimism wanes.
Citations:
1 Albert-Edwards-Buy-the-dip-or-jump-off-a-sinking-ship.pdf
