Famed Bear Albert Edwards Says Stocks Are Vulnerable, Japan Risks Rising

Even if the words coming out of Albert Edwards’ mouth were gloomy, the famously bearish Société Générale strategist was in his usual good mood on Tuesday.

It’s something that tends to catch people off guard when they meet him, he said.

“I’m quite a happy, upbeat person,” Edwards told BI. “As opposed to the miserable bastard I come across in my written work.”

If you follow the British strategist’s research, it’s not hard to see why he comes across as a grouch. He is known as a perennial bear on Wall Street (he refuses the moniker of “perma-bear” and prefers “uber-bear”).

His weekly client notes regularly question the prevailing market narrative and warn of downside scenarios. His latest report warned that rising Japanese bond yields could lead to a “global financial market Armageddon.”

His tune during a May 27 interview was no different. Edwards, who shot to fame for correctly calling the eventual dot-com bust in the late 1990s, said that stocks are still vulnerable to a pullback after their 18% rally from April lows. Despite investors starting to discount recession and inflation risks on the heels of President Donald Trump’s tariff reductions, valuations remain high and risks abound, he said.

One of those risks is the possibility that investors start to question hefty AI spending from the mega-cap tech firms. Another is a potential recession.

But, in his opinion, the top risk the market should be aware of is rising Japanese interest rates, which could cause an exodus of capital from the US as investors unwind the yen carry trade and chase more attractive yields.

The Bank of Japan, having kept interest rates low for years, pushed flows of money into US stocks and bonds. Now that the trend is reversing, those flows could grind to a halt, he said.

Ultimately, however, it’s not easy to know what will spark a stock-market decline. What’s easier to know is simply that the market is in a precarious spot thanks to “steamy” valuations. One popular measure, the Shiller CAPE ratio, shows stock valuations at some of their highest levels in history.

“These are really super high valuations,” he said. “And you look at things like the relationship between bonds and equities, with bond yields where they are now and the equity risk premium being so low.”

“You just think, ‘You’re a bit vulnerable here to bad news, aren’t you?'” he added. “Something comes along, you really are not in a great situation.”

The resident bear

Edwards is something of an anomaly on Wall Street. Most of the time, top strategists issue fairly bullish forecasts.

For example, in January this year, the average 2025 S&P 500 price target saw 11.5% upside. Just two strategists — Stifel’s Barry Bannister and BCA Research’s Peter Berezin — predicted negative returns this year. It remains to be seen whether that will be the case, but suffice to say, investors were caught off guard by the S&P 500’s 20% decline from February to April.

It’s these rapid declines, though few and far between, that Edwards wants investors to keep in mind as possible outcomes in frothy environments. As a result of pessimistic tendencies, Edwards isn’t correct all too often, but that’s not necessarily the point — and his readers know that.

“A lot of clients who totally disagree with me like to read my stuff. It’s a reality check,” he said.

Earlier this year, financial professionals detailed to BI the pressure that strategists face from both their bosses and clients if they’re wrongly bearish for too long. David Rosenberg, who called the housing bubble and recession in the mid-to-late 2000s while working as the chief North American economist at Merrill Lynch, said the firm asked him not to use the word “bubble” to describe housing market dynamics at the time because it was scaring clients.

Edwards said he doesn’t feel that pressure. He writes his notes as Société Générale’s “alternative view,” separate from their house view.

“You have to have good employers,” he said. “People have said to me, ‘If you worked at an American bank, you’d be fired immediately because of your views.'”