Source: Wall Street
Author: Cao Zexi
Niuniu knocked on the blackboard:
Edwards, a famous short seller on Wall Street, believes that the US stock market, especially tech giants such as growth stocks and FAANG, rely on a low interest rate environment. Us stocks will collapse completely before the yield on US debt reaches 1.5 per cent.
Is the bubble in US stocks about to burst?
Albert Edwards, an analyst at Societe Generale and a famous short seller on Wall Street, believes that as US 10-year bond yields have soared so far this year, the US stock bubble is about to burst and "no matter how the Fed rescues it, it will be useless".
Recently, yields on 10-year Treasuries have soared, breaking not only the 1 per cent mark, but also the resistance level of the past year.
Edwards believes that:
From the collapse of US stocks in 2018, we know how much the US stock market, especially the so-called growth stocks and technology giants such as FAANG, are dependent on the low interest rate environment.
At the time, the S & P 500 had just broken through 3000, and the rally was relatively evenly distributed across sectors. At that time, one of the important reasons for the sharp fall in US stocks was that the yield on 10-year US bonds exceeded 3%.
Today, however, only technology stocks outperform in the US stock market, and the technology sector is trading at 30 times forward earnings (up from 20 times in the fourth quarter of 2018). This means that it is all too easy to prick the bubble now.
In Edwards's view, as the 10-year Treasury yield breaks through 1% and breaks through the long-term trading price range of nearly a year, the 10-year Treasury yield will continue to rise to 1.5%:
Us stocks will collapse completely before the yield on US debt reaches 1.5 per cent.
Edwards explained:
Since 2018, to be exact, US stocks have been shaken by the rise in 10-year Treasury yields in February 2018, October 2018, April 2019 and January 2020.
The tipping point of these four shocks is that the spread between the 12-month yield of global technology stocks and the yield on 10-year US Treasuries has fallen to around 2.5 per cent.
At present, this figure has fallen below 2.5%, which means that the risk of US stocks is approaching.
Edwards believes that now that US stocks have reached a tipping point, it is only a matter of time before they collapse.
However, some analysts believe that if the Fed adopts the control of the yield curve, it may continue to push down US bond yields, thus maintaining a bull market in US stocks.
Edit / lydia