The central banks’ monetary policy, but especially its consequences, are increasingly being discussed among investors. The question also arises as to which investments investors benefit best from. Top economist David Rosenberg thinks he knows the answer.
• Rosenberg believes the stock rally is overvalued
• Expert assumes the end of the interest rate hike cycle
• Bonds will outperform stocks
David Rosenberg is chief economist and strategist at Rosenberg Research, a company he founded. The market expert believes the current stock rally is unsustainable and recently advised investors to take profits before the market crashes. In particular, Rosenberg believes the market-wide US index S&P 500 is massively overvalued, as he explained in a YouTube video entitled “Take the money and run”. Rosenberg is particularly pessimistic about the situation in two sectors that have recently proven to support the market: IT and cyclical consumer goods.
Rosenberg now follows up in an article for the Financial Post.
Rosenberg does not expect any further interest rate increases
He once again emphasized his doubts about the sustainability of the stock market development, especially in light of the monetary policy the US Federal Reserve and its consequences.
Rosenberg assumes that there will be no further interest rate increases by the monetary authorities. The Fed last raised interest rates in July. After a total of 16 interest rate increases within 16 months, the central bank has kept its feet still ever since, including at the most recent interest rate meeting at the beginning of November. For Rosenberg, these are clear indicators because historically, a five-month pause without rate hikes marks the end of the Fed’s tightening cycle. “History shows that if the Fed doesn’t raise interest rates for so long after a tightening cycle, the cycle is over. The next step would be one Interest rate cut” said Rosenberg in his article for the Financial Post.
Bonds have an advantage
This is good news for bonds, as a fall in interest rates would drive up bond prices. During the interest rate break, bonds and stocks initially tended to rise together, but bonds ultimately came out on top, Rosenberg is convinced in his commentary. “… nothing performs as well as the 30-year government bond, which traditionally delivers an average total return of 9% point by point,” the top economist continued.
Stock market rise not sustainable
In another communication from Rosenberg, quoted by Yahoo Finance, the market expert is also skeptical about the recent stock rally and its sustainability, as the rise in stocks was “pretty shitty” and there was also a lack of fundamental data. This was done at a time of weak earnings forecasts and without the participation of small-cap stocks: “We saw pretty significant outperformance in stocks that were most heavily shorted, with weak balance sheets and in non-profitable technology stocks,” concludes he summarizes the latest developments. “A polarized rally with no momentum in small caps suggests concerns about economic momentum.”
In his view, signs of a decline include a steady decline in monthly jobs and an unemployment rate that rose 50 basis points from its cycle low, from 3.4 percent in April to 3.9 percent in October. Rosenberg sees this as a signal of recession.
Editorial team finanzen.net