Why a famed strategist says the government bond market could spoil a fragile bull rally

• Albert Edwards warns of the technical stock bubble amid high reviews.

• The technology sector is now 37 % of the US stock market, exceeding the peak of the Dot-Com era.

• Edwards said the increasing bond returns will eventually stop this gathering.

Like the high market evaluation levels it warns, the strategic strategy expert of Société générale does not tend to serve a good service in the market time in the short term.

He recognizes the same extent.

Edwards wrote in a note on August 21 to clients: “A stock investor responded to my words of caution on the” bubble “of the American technology has now been taken to stick to pins in the plastic models of me. “In fact, an ankle was hurting more than six months, and although the physiio says it is tendinitis, I strongly doubt otherwise.”

But no one denies that Edwards, which is blatant in the ups of the budget in Wall Street these days, has some observations about the place where the market sits – especially with regard to technology shares, and in the context of government bond returns.

Based on his argument that the market is in a bubble, he has highlighted in the last note that the technology sector now constitutes 37 % of the total of the United States market, which is higher than the peak of the bubble of the point in 2000. Over the past few years, investors have accumulated in technology amid mobile excitement around AI.

Another scale shows that the technology sector has historically high reviews is a decrease in free money flow. This means that the current market prices are high for cash flow after expenses, as technology companies empty money in developing artificial intelligence. The sector contains a free cash flow yield of about two. This is also reflected in the 1.2 % low S&P 500 profit revenue.

Meanwhile, long -term government bond returns increased at the same time as technology gathered, and risk -free yields are offered more than 4 %.

The percentage of treasury revenues increased for 10 years to market profit returns to the level of the point era.

Historically, the increasing revenues of the bonds were affected by the stock evaluations, but this has not yet been in this market. Edwards says it is only a matter of time to change.

“Only the last day, the interest rates were a rocky bottom and the bulls were the stocks told us that the high -stock sky assessments were justified by Tina – There is no alternative“I wrote.” But Tina Magic is no longer working, and now interest rates are much higher. So, how can the stock market ignore the uncompromising height in the returns of long bonds by feeding the strong profits news from a handful of major technology shares and promising more in the future? “