{"id":218501,"date":"2024-03-29T20:55:28","date_gmt":"2024-03-29T20:55:28","guid":{"rendered":"https:\/\/michigandigitalnews.com\/index.php\/2024\/03\/29\/why-recession-is-still-coming-and-ai-isnt-driving-markets-and-may-be-a-bubble-analyst\/"},"modified":"2025-06-25T17:19:41","modified_gmt":"2025-06-25T17:19:41","slug":"why-recession-is-still-coming-and-ai-isnt-driving-markets-and-may-be-a-bubble-analyst","status":"publish","type":"post","link":"https:\/\/michigandigitalnews.com\/index.php\/2024\/03\/29\/why-recession-is-still-coming-and-ai-isnt-driving-markets-and-may-be-a-bubble-analyst\/","title":{"rendered":"Why recession is still coming and AI isn’t driving markets and may be a bubble: analyst"},"content":{"rendered":"

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Soci\u00e9t\u00e9 G\u00e9n\u00e9rale\u2019s chief global strategist, Albert Edwards, isn\u2019t known for his optimism. The Wall Street veteran made a name for himself in financial papers in 1996 with a bold prediction about an \u201cice age<\/a>\u201d of economic stagnation and negative bond yields in the West that proved at least partially correct<\/a>. And in recent years, Edwards has been the rare voice from finance legitimizing the controversial term \u201cgreedflation<\/a>\u201d\u2014the criticism of corporations for using rising material costs during the pandemic and war in Ukraine as an \u201cexcuse\u201d to boost their profit margins. In April 2023, his lament about the economic impact of corporate greed rang out across the Street: \u201cWe may be looking at the end of capitalism<\/a>.\u201d\u00a0<\/p>\n

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While many economists argue that the rise in corporate profits during the inflationary post-pandemic lockdown period wasn\u2019t a result of greedflation, but rather a standard part<\/a> of the cyclical nature of profits during business cycles. Edwards said last June that, in his view, this time really is different. \u201cGreedflation is a controversial topic. For me it is simple\u2014I can find no precedent in history (including the inflationary 1970s) during which unit costs have risen sharply and yet unit profits have also risen, except in this cycle,\u201d he wrote in a note<\/a> to clients. \u201cThings certainly are different this time.\u201d<\/p>\n

Now, Edwards, who has been forecasting a recession<\/a> for years, is turning his attention to the hype surrounding artificial intelligence\u2014and, as usual, he\u2019s not convinced.<\/p>\n

\u201cEvery bubble has a compelling narrative,\u201d he wrote in a Thursday note. \u201cThe current narrative centers on the anticipation of an AI-driven surge in corporate profits to fully justify the current stratospheric valuations. Those of us who lived through the late 1990s [tech] bubble have heard it all before and roll our eyes skyward.\u201d<\/p>\n

Edwards said that the theory that Al will drive a corporate profit boom is \u201centirely plausible,\u201d but he hasn\u2019t seen enough earnings growth to back it up. In a bid to measure \u201cmomentum\u201d in earnings growth, the strategist looked at the percentage of Wall Street analysts\u2019 S&P 500 earnings per share (EPS) forecast changes that were upgrades, rather than downgrades. He found that in the fourth quarter of 2023 around 48% of analysts\u2019 EPS estimate changes were upgrades, compared with nearly 80% in early 2021. Similarly, a six-month moving average of the EPS upgrade percentage shows a clear trend of fewer analyst upgrades at the end of last year.<\/p>\n

\u201cAll I can say is that for analyst optimism on the S&P to have topped out only at 50% before subsiding is not the stuff of normal cyclical recoveries, let alone an AI \u2018new era,\u2019\u201d Edwards wrote. \u201cBut it is the downtrend that catches my eye. Is this anemic profits backdrop really consistent with the S&P rising by one-third in a year?\u201d<\/p>\n

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