“Humbled” Abby Joseph Cohen Warns Of “Considerable Downside” In Stocks

“I’m quite concerned,” warned Goldman’s Abby Joseph Cohen (AJC) this morning during an interview with Bloomberg TV as the infamous permabull from The DotCom era has changed her tune dramatically on stocks and appears to disagree with her colleagues.

The Goldman ‘house view’ is that stocks are “modestly undervalued” based on extrapolated corporate profit rebounds…

Source: Bloomberg

…which is fascinating given that valuations are at record highs…

Source: Bloomberg

Of course, Goldman – like every other highly paid strategist on Wall Street – is merely banking on global central banks keeping the dream alive (and AJC admits that)…

Source: Bloomberg

But AJC warns Bloomberg’s Tom Keene that “there could be considerable downside,” depending on “factors that we can’t fit easily into our models.”

Specifically, the strategist said these factors include: “What will the Congress do? What will the President say? And of course, the election outcome.”

As Bloomberg reports, Cohen, who in the 1990s was the most famous equity strategist in America, pointed to “wide gaps” in valuations within the stock market, with the recovery rally since March having been largely driven by a handful of mega-cap technology companies. This, she warned, can make the market more vulnerable to disappointments.

The strategist concluded by claiming that the market appears to be discounting the one ‘good’ outcome – a “blue wave”…

“What we’re seeing from investors over the last several days is that a ‘blue wave’ might not be such a bad thing because it would give us more certainty with regard to policy, particularly with regard to the use of fiscal policy to help our economy at this point.”

Watch the full interview below:

But ‘blue wave’ aside, given AJC’s warnings, perhaps bonds are telling the truth after all?

Source: Bloomberg

As Cohen admits: “Those of us who have lived our professional lives really focusing in on the math, I think should feel very humble right now because what we recognize is that the models may not be able to properly reflect all of the volatility not just in the markets, but in the economy, in policy and of course in investor sentiment.”