Albert Edwards Sees Glaring Disconnect Between ‘Hope And Evidence’

Albert Edwards is skeptical of the rally in equities.

I think he’d agree that’s not news. I don’t personally recall an equity rally he wasn’t skeptical of. But it’s worth noting the divergence Albert highlighted in a short missive published Wednesday.

Revision sentiment generally inflected for the better amid a US earnings season that came and went without serious incident. But there’s a glaring disconnect between… well, between “hope and evidence,” as Edwards put it.


What you’re looking at in the visuals is the divergence between, on one hand, upgrade share (the red lines) and, on the other, a recession indicator and actual EPS growth (black dashed lines).

“Such upward spikes [in analyst estimate upgrades] are usually a prelude to sharply higher actual earnings growth and the bottoming of the cycle,” Edwards wrote. “Yet the first chart shows a big divergence in analyst optimism from the official economic leading indicator which has never been so weak without signaling an imminent recession.”

He presented those visuals with a chart of forward analyst estimates for aggregate profits, some version of which I’ve discussed here on too many occasions to count. The upshot, as regular readers are aware, is that bottom-up consensus doesn’t expect anything like a recessionary decline in earnings. That’s problematic if you think a recession is more likely than not.

Edwards also rolled out his long-term EPS growth estimates chart and the associated PEG visual. These charts are popular. The last time he used them, Albert garnered a (rare in modern times) mention in the mainstream financial press, where Bloomberg’s Lu Wang described him as “notoriously glum.”


“In contrast to analysts’ apparent near-term cyclical EPS optimism, their long-term estimates (3-5 years) have crashed to 9%,” Albert wrote. “The PEG ratio [at] just under 2.0 is in bubble territory.”

The bottom line, Edwards said, is that “US investors have rarely paid so much for so little.”

The same is true of US homebuyers and especially UK grocery shoppers.


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2 thoughts on “Albert Edwards Sees Glaring Disconnect Between ‘Hope And Evidence’

  1. My guess is that the professional guessers are underestimating long-term EPS growth by quite a bit. November was a golden opportunity to open long-term positions in mega-cap tech, but any short-term pullbacks from debt ceiling drama are likely to be temporary blips at this point as we are still in the early innings of generative AI and what that’ll mean for the cost structure of tech companies.

  2. AI in the form of Nvidia leaps walls of worry in a single bound. Perhaps their revenue guides are taking into account advanced orders of the wealthy getting their own personal T-800.

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