Top economist David Rosenberg, known for predicting the 2008 market crash and recession, is sounding the alarm about a potential stock market crash.
Mega-Bubble: In recent notes to Rosenberg Research clients, the market bear warned that the current market is in a “mega-bubble” and cautioned investors against chasing momentum.
“When this mega-bubble pops, it will be spectacular,” Rosenberg wrote on Oct. 18. “This is no time to chase momentum or the herd mentality.”
Warning Signs: Rosenberg cited high valuations, investor positioning and sentiment as warning signs. The most recent AAII Sentiment Survey, which tracks investor sentiment, shows 45.5% of its respondents characterized themselves as bullish, above its historical average of 37.5% for the 49th time in 50 weeks.
“This is the mother of all momentum-driven stock markets,” he wrote in an October 9 note.
Rosenberg warned the S&P 500 is at least 25% higher than fundamentals suggest it should be with stock prices outpacing earnings growth and analyst EPS revisions trending to the downside.
The economist is bearish on the economy as well as the markets and anticipates a recession on the horizon. Rosenberg pointed to emerging signs of economic weakness, including a rise in unemployment and decreased job openings.
Rosenberg’s warnings come at a time when the S&P 500 has seen significant gains, up 23% year-to-date following gains of 22% in 2023. Investors can track the S&P 500 through funds that track the index’s movements, including the SPDR S&P 500 SPY, known as the “Spy,” and the iShares Core S&P 500 ETF IVV.
Rosenberg cautioned investors against chasing the “overvalued” market and advised clients to preserve capital.
“J.P. Morgan reportedly once commented that he got wealthy not by buying at the lows and selling at the highs, but rather by being involved in the middle 60% of the bull market. We are well past that point,” Rosenberg wrote.
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