- The Santa Claus rally in stocks could end abruptly with a “bad January,” David Rosenberg said.
- The economy could collapse in 2024 as past budget surpluses and interest rate hikes are headwinds, he said.
- The president of Rosenberg Research announced his latest gloomy outlook in a research note this week.
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Stocks appear overwhelmed after their Santa Claus rally and are set to decline in January – and the American economy is much weaker than it seems and faces a slump next year, David Rosenberg warned.
The president of Rosenberg Research predicted the Great Recession, but financial markets and the economy have defied his dire predictions in recent years. The former chief North America economist at Merrill Lynch expressed his latest gloomy outlook in a research note on Thursday.
Here are the 5 best quotes, lightly edited for length and clarity:
1. “The stock market appears increasingly overbought, even to the most casual observer. The major averages, particularly the Nasdaq, are well extended from their 50-day trendlines. Sentiment indicators are trending toward bullish extremes.” Complacency. Valuations remain stretched and are unconvincing compared to the risk-free rate. And earnings estimates are no longer rising – in fact, they have started to reverse ever so slightly.”
2. “We will most likely experience a Christmas hangover at the start of the new year. Of course, investors who wait until January to sell stocks for tax reasons are delaying this potential decline, but ultimately it could lead to a dire outcome in January.”
3. “The economy is much more fragile than meets the eye.” (Rosenberg pointed to a recent survey indicating that business conditions are deteriorating and emphasized that the last ten economic indicators released last month released, including non-farm payrolls, housing starts and consumer spending, have all been revised downward.)
4. “The fastest interest rate hike cycle since the 1980s is beginning to take hold – just as experts and markets are fully committed to the 'soft landing' narrative. Households are feeling the impact of the most aggressive interest rate hike cycle since the 1980s, both in the financial sector and in the finance sector.” The distress in credit cards and auto loans is reaching levels last seen in the 2008 global financial crisis. Defaults on these loans are expected to continue to rise as layoffs increase and banks tighten credit conditions.”
5. “We have been in a 'soft landing' all year long, as was the case in 1979, 1989, 2000 and 2007. The 'soft landing' is the transition phase – the bridge – from the expansion phase of the business cycle to the contraction phase, which I believe will be the story next year. The Fed has braced for a downturn.” (Rosenberg predicted that aggressive fiscal stimulus in 2023 would dampen year-on-year growth, highlighting the lagged impact of the most extreme rate-hiking cycle in four decades.)
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