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David Rosenberg says the bull stock market won’t last and a recession seems certain.
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The veteran economist noted that the number of jobless claims just hit the highest level since October 2021.
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Rosenberg pointed to a series of indicators that suggest the stock is overvalued and will fall.
David Rosenberg has warned that the strong stock market rally is unfounded and that the US economy will almost certainly sink into a recession.
The S&P 500 officially entered a bull market on Thursday, posting a 20% gain from its October lows. Meanwhile, unemployment data published on the same day showed initial jobless claims rose to 261,000 last week, the highest level since October 2021.
“This market continues to be nothing more than a short-term momentum game,” said senior economist and president of Rosenberg Research in a morning note.
Rosenberg highlighted the disconnect between the stock market milestone and the weakening labor market. He questioned whether the current stock valuation makes sense amid a dark economic backdrop.
“You can believe the press headlines or you can believe the leading indicators – this suggests that we actually have a 99.15% chance of a recession as officially defined by the NBER, ” he said. “And if that is the case, it is the first time in recorded history that a bear market has essentially ended before a recession has occurred.”
Rosenberg suggests that last year’s strong federal spending may have pushed back the recession. He describes financial aid as “a gift Energizer Bunny keeps giving.”
Furthermore, the former chief North American economist at Merrill Lynch highlighted the immense optimism priced into the stock. He noted that the S&P 500 futures price-to-earnings ratio is 25% higher than its long-term average, and the index is heavily concentrated, like it was during the dot-com bubble.
He also pointed to low volatility expectations as evidence of deep complacency among investors and warned that sentiment is “rapidly hitting extreme highs as FOMO revives”.
Rosenberg had been sounding the alarm for several months. At the end of April, Mr forecast recession in September, S&P 500 drops 20% and credit crisis when fear banks choke lending. I also tell Insiders in February, house prices can drop 15%-20%.
Many market commentators warned that asset prices would fall and the economy would shrink. They pointed to the Federal Reserve raising interest rates from near zero to 5% since last spring, which has encouraged saving and made borrowing much more expensive.
Higher interest rates help fight inflation, but they’re often bad news for consumer spending, debt-dependent industries like commercial real estate, and riskier assets like stocks.
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