The S&P 500 is vastly overrated

• David Rosenberg expects a repeat of last year’s sharp decline in stocks as risks mount in the markets.

• The economist sees several headwinds including downgrades by Fitch, Moody’s and China’s deflation.

• Rosenberg says the S&P 500 is grossly overvalued by historical standards and compared to other assets.

Prepare for a repeat of last year’s stock slump, as investors wake up to the heightened risks in the markets today, David Rosenberg warned.

The head of Rosenberg Research pointed out downturn in Chinathe possibility of higher borrowing costs for the US government after Fitch downgraded The country’s credit rating, looms large credit crunch After Moody’s Lower credit ratings from several US regional banks. As singled out Resume student loan payments in September as a potential drag on future spending for young Americans.

“The stock market simply doesn’t understand, or more benevolently, doesn’t appreciate,” Rosenberg said of those headwinds. Video uploaded to his company’s YouTube channel Tuesday.

“It would be one thing if the S&P 500 was priced for these imperfections, but instead for perfection,” added the former chief economist for North America at Merrill Lynch.

Rosenberg explained that the equity risk premium, or the expected difference in equity returns versus safe assets such as government bonds, has fallen to its lowest level in two decades. Moreover, valuations of S&P 500 companies are in the top 9% of cost in the index’s history, he said.

The veteran economist pointed out that his company’s Strategies tool, which models future returns for various assets and markets, is now showing its lowest score for the S&P 500 index since January 2022. He noted that the benchmark index has declined by nearly 30% over the next nine months. year, as price-to-earnings multiples recede toward historical averages.

“We should expect deja vu, especially with interest rates much higher than they were at the time,” Rosenberg said.

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Rosenberg argued that investors should avoid the “extremely expensive” US stock market, and instead buy “”undervalued and severely shorted” US Treasury bonds”. — as well as gold, a traditional haven asset.

It was Rosenberg Sound the alarm on stocks and economic risks for a while. In a recent research note, he compared the current hype around stocks to the mania that preceded the Great Crash of 1929, the collapse of the dot-com bubble in the early 2000s, and the housing market crash of 2008.

Moreover, he warned, American consumers are burning through their savings and accumulating credit card debt while weathering historical inflation and sharply rising interest rates. They are now “at the end of the rope,” he said, setting the stage for a painful recession.

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