Stocks are reflecting past bubbles as the Fed handles liquidity too loosely, top strategist says

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  • The stock market is showing striking similarities to historic asset bubbles, SocGen’s Albert Edwards has warned.

  • That could be a sign that the Fed’s monetary policy is not nearly tight enough, he said.

  • The Wall Street bear has been warning of a recession and a coming stock correction for months.

Stocks reflect historic bubbles, with the Fed’s monetary policy not nearly as tight as markets think, said Albert Edwards, a global strategist at Societe Generale.

Edwards, who is currently among Wall Street’s most bearish forecasters, pointed to the big rally in stock prices over the past year, with the S&P 500 gaining 27% from its October 2022 low.

But rising stock prices could be a warning that the Fed’s monetary policy is too lax, he warned, pointing to the the balance sheet reduction of the central banks and expectations for Fed rate cuts later this year, both of which ease financial conditions.

That could explain why the S&P 500 did posted a series of record highs this yearand why the total money supply – a measure of liquidity in the economy – has risen 10% over the past year, according to Federal Reserve data.

“The current narrative focuses on the expectation of an AI-driven rise in corporate profits to fully justify current stratospheric valuations. Those of us who lived through the TMT bubble in the late 1990s have heard it all before and are rolling our eyes to heaven,” Edwards said. in a note last week. “The Fed may have played ‘losey goosey’ with liquidity over the past year,” he added.

Investors have made the bull market dependent on the so-called ‘AI revolution“, but Edwards says there are signs that analyst and business optimism…

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