Investors are making the same mistake they made during the dot-com and housing bubbles, analyst says

• Investors are so excited about stocks that they're missing the bigger, grimmer economic picture.
• Danielle DiMartino Booth said the complacency reminded her of the dot-com and housing bubbles.

Investors are so entranced by soaring stocks that they're ignoring multiple red flags on the economic front, Danielle DiMartino Booth says, drawing comparisons to the dot-com and housing bubbles.

"We're not really paying attention because the stock market remains so high," the CEO and chief strategist of QI Research told BNN Bloomberg on Monday. "It's easy to ignore what's happening on the ground in the US economy."

"We saw similar levels of complacency in 2000 and in 2007," she added. "Those episodes don't end very well, but they do give new meaning to the cliché, 'the calm before the storm.' I really do think that that's where we are."

The S&P 500 and Nasdaq Composite have gained 19% and 36% respectively this year, fueled by artificial-intelligence buzz and waning recession fears. Yet there's "acute weakness" in several economic sectors, companies are filing for bankruptcy at the fastest rate since 2009, and commercial real estate developers are struggling to access capital as lenders pull back, DiMartino Booth says.

The former advisor to the Dallas Fed predicted more banks would suffer SVB-style collapses in the coming months. She added that many smaller lenders were "up to their eyeballs" in CRE assets, which had plunged in value due to the remote-working trend and the increased cost and difficulty of borrowing.

DiMartino Booth also underscored the tension between the Federal Reserve tackling inflation by hiking interest rates and the Biden administration continuing to spend freely more than three years after the COVID-19 pandemic first struck.

"Uncle Sam is spending it as quick as he possibly can borrow it," she said.

Inflation surged as high as 9.1% — a 40-year high — last year, spurring the Fed to hike rates from almost zero to a 22-year high of 5.25% to 5.5% today. Yet the pace of price growth slowed to 3% in June, fanning hopes that the central bank can rein in price increases without causing a recession and could begin cutting rates in the coming months.

The complex situation has divided economic experts. The likes of Jeremy Siegel and Paul Krugman have recently said a recession is unlikely, while others including David Rosenberg and Jeremy Grantham have continued to expect a downturn. DiMartino Booth has made it clear she's in the latter camp for now.