Opinions are currently divided among experts as to whether the US stock market still has room for improvement or whether investors should brace themselves for an imminent crash. Economist David Rosenberg takes a clear position in this discussion and recommends investors to take profits now. Because the current situation reminds him strongly of the beginning of 2022.
• Rosenberg: Market does not recognize headwind factors
• Situation reminiscent of early 2022 before the stock markets crashed
• Expert with recommendations for investors
David Rosenberg, President of Rosenberg Research, has recently warned of an impending recession and a 20 percent fall in the US stock market. In a YouTube video titled “Take the money and run,” the former Merrill Lynch economist issued another stark warning to investors in mid-August, explaining why he thinks the broad US S&P 500 index is currently massively overvalued and heading for a crash.
Rosenberg: Market ignores several negative factors
As Rosenberg points out in the video, the risk premiums of stocks versus bonds are currently at their lowest level in two decades and are “razor thin”. At the same time, however, the stocks listed in the S&P 500 are valued more highly than ever before in the history of the US index. The expert sees a number of factors that are currently causing headwind for US stocks. Specifically, he mentions the downgrading of the USA’s creditworthiness by the rating agency Fitch. This will affect future fiscal policy, as the US government will have to pay higher borrowing costs in the future. According to Rosenberg, the fact that the rating agency Moody’s recently downgraded several US regional banks will also have a negative impact on the stock market. Because he expects a credit crunch as a consequence of this, as the banks are likely to tighten their lending standards. The president of Rosenberg Research also counts the as further negative factors deflation in China as well as the student loans, which have to be paid off again from September after a pause in installments. As a result, young people will have less money available for other expenses – and that will hurt the economy. Because according to the economist, this group otherwise spends the most money in the US economy.
The market simply doesn’t understand this headwind from the points mentioned, or rather, it doesn’t recognize it, according to Rosenberg. “It would be one thing for the S&P 500 to price in those imperfections, but instead it’s pricing in perfection,” he said. However, an indicator developed by Rosenberg Research is currently sending alarm signals, as it has fallen to its lowest level since January 2022. When the indicator was at this level last year, the S&P 500 collapsed by around 30 percent in the coming months, the expert warns. “We have to expect a sense of déjà vu, especially with interest rates being much higher than they were then,” he said.
David Rosenberg now has these tips for investors
For investors, however, the expert also has some recommendations ready to survive the expected crash as well as possible. In the YouTube video, Rosenberg recommends taking profits from the overpriced US stock market and starting to minimize risks. He recommends gold and US government bonds, which are currently undervalued, as more worthwhile and safer investments. Also, according to Rosenberg, Canadian and Asian stocks might be worth a look – just not those from China, where he thinks geopolitical risks are too great.
Editorial office finanzen.net