Thursday, July 25, 2024

David Rosenberg warns S&P 500 May plunge 27%, worst yet to come


  • David Rosenberg warned that the S&P 500 could fall another 27% to about 2,700 points.
  • He ruled out bottoming the market anytime soon, and said “Black Monday” made him forever pessimistic.
  • The veteran economist criticized the Fed, touted bonds, and issued a bleak outlook for 2023.

David Rosenberg warned that the S&P 500 could fall another 27%, predicted long-term bonds to rise more than 20% next year, and ruled out the stock market bottoming out anytime soon.

Veteran economist and head of research Rosenberg reflected on his experience as a Wall Street economist on Black Monday — which happened nearly 35 years ago — during RealVision Interview released this week. He also accused the Federal Reserve of raising asset prices, and issued a bleak outlook for 2023.

Here are the 8 best quotes from Rosenberg, edited slightly for length and clarity:

1. “The first day I walked into a commercial floor there were people swinging from the chandeliers. It was a mess. It was a scary experience. I’ll never forget it.” (Rosenberg’s first day as a Nova Scotia economist was October 19, 1987—so-called Black Monday, when the Dow Jones lost nearly 22% in one session.)

2. “If this happened to you, Eyore would be a donkey for the rest of your career too. They always call me. It’s almost genetic in a way.”

3. “They wanted the reflection. They’re like the clown in the circus, they blew up the balloon. And now the balloon — I’m not saying it’s bursting, but there’s definitely helium now coming out of the real estate market.” (Rosenberg has been criticizing the Fed for inflating asset prices in recent years.)

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4. “They want the stock market to go down. They want home prices to go down. Why? Because there isn’t much chance in hell they will get to 2% consumer inflation, without there now being a period of asset deflation. It is 100% necessary.” (Rosenberg was referring to the Fed’s attempt to cut inflation from above 8% in September to around 2%.)

5. “In a depressed bear market, 83.5% of the previous bull market situation is reversed. You’re looking at something like 2700 in the S&P. That’s where we’re headed.” (Rosenberg estimates that the benchmark stock index, which is down 23% this year at about 3,700 points, could fall another 27%.)

6. “You haven’t seen anything yet. All bad things are waiting for us because of delays. Next year will be the year we experience financial cramps. Next year will be the year when – as always – he will shout ‘uncle’ and say we’re done.” (He noted that the stock market has only returned to its long-term average so far, and there hasn’t been a slump in earnings yet.)

7. “70% of the way into the Fed’s easing cycle, and 70% of the way into a recession, is when stock markets typically dip to lower lows. They are narrowing in an inverted yield curve today, but there will be an easing and a steeper curve next year. At that point it became continuous.”

8. “I think the total return in long bonds is likely to be more than 20% next year. I don’t think the stock market will achieve 20% next year.” (Rosenberg said it was a “big mistake” not to buy long-term bonds based on their recent weakness, as he expects bonds to be the first asset class to recover from the current slowdown.)

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