David Rosenberg says the bull market in equities will not last and a recession seems assured.
The veteran economist noted that jobless claims just hit their highest level since October 2021.
Rosenberg pointed to a slew of indicators suggesting stocks are overvalued and destined to fall.
The powerful rally in the stock market is unfounded and the US economy is virtually guaranteed to slide into recession, David Rosenberg warned.
The S&P 500 officially entered a bull market on Thursday, as it posted a 20% gain from its October lows. Meanwhile, unemployment data released 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 dynamic short-term game,” the veteran economist and president of Rosenberg Research said in a morning note.
Rosenberg pointed to the disconnect between the stock market milestone and the labor market downturn. He questioned whether current stock valuations were justified given the darkening economic backdrop.
“You can believe the headlines or you can believe the leading indicators – which suggest we do indeed have a 99.15% chance of an official NBER-defined recession,” he said. “And if so, then this is the first time in history that a fundamental bear market has ended before the downturn has even arrived.”
Rosenberg suggested aggressive federal spending last year may have staved off the recession. He described the tax support as “the Energizer Bunny gift that kept on giving.”
Additionally, the former chief North American economist at Merrill Lynch pointed to the immense optimism embedded in equities. He noted that the S&P 500’s forward price-to-earnings multiple is 25% above its long-term average and that the index is heavily concentrated, as it was during the dotcom bubble.
He also pointed to low-volatility expectations as evidence of deep complacency among investors, and warned that sentiment is “rapidly reaching ultra-bullish levels as FOMO stages a resurrection.”
Rosenberg has been sounding the alarm for several months. In late April, he predicted a recession by September, a 20% drop in the S&P 500 and a credit crunch as banking fears strangled lending. He also told Insider in February that house prices could drop 15-20%.
Many market commentators have warned that asset prices will fall and the economy will contract. They pointed to the Federal Reserve’s hike in interest rates from near zero to over 5% since last spring, which has encouraged saving and made borrowing much more expensive.
Higher rates help fight inflation, but they’re generally bad news for consumer spending, debt-dependent industries such as commercial real estate and riskier assets such as stocks.
Learn more: Real estate mogul Jeff Greene made $800 million shorting the last real estate bubble. He explains how John Paulson inspired the contrarian bet and how he protects his wealth today.
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