Stocks are in the midst of a “hope phase” that may be as short-lived as one that occurred a year earlier, according to Albert Edwards, a global strategist at Societe Generale SA.
The CHART OF THE DAY compares the Standard & Poor’s 500 Index’s performance since October with its year-ago swings, as Edwards did yesterday in a report. Last year, the index dropped during the second half of February, rebounded to reach its 2011 high in April, and tumbled in a second-half bout of volatility.
This year’s gains reflect anticipation of sustained U.S. economic growth and a so-called soft landing for the Chinese economy, according to Edwards, based in London. He also cited optimism that Greece’s second bailout and the European Central Bank’s moves to ease bank financing will help the euro region.
“Hope still beats in the breast of equity investors,” he wrote. “The market will rip out that hope and consume it in front of investors’ eyes.”
Corporate earnings may be a catalyst for the abandonment of hope, the report said. Edwards noted that estimates for S&P 500 companies as a group are dropping for the first time since late 2007, when the U.S. economy was sliding into a recession.
Edwards reiterated in September that the index will fall to 400, a plunge of about 70 percent from yesterday’s close, before the next bull market begins. He saw the yield on 10-year Treasury notes falling to 1.5 percent. Last year’s low was 1.67 percent.
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