Economist David Rosenberg predicts the S&P 500 will crash a further 17%, and says we're currently 'reliving the summer of 2008'
- David Rosenberg said in a recent op-ed that the S&P 500 could fall another 17% to 3,300 points.
- "The past two years represented a fake bull market built on sand, not concrete," he said.
The S&P 500 will crash a further 17% to 3,300 as stocks enter a prolonged bear market that's comparable to the run-up to the 2008 financial crisis, the famed economist David Rosenberg said.
"I feel like I am reliving the summer of 2008," he wrote in a Monday MarketWatch op-ed. "The stock market is following a familiar pattern of a recessionary bear market."
By late May 2008, before the extent of the problems of the subprime lending market were apparent, the S&P 500 had narrowly averted falling into a bear market, having dropped by 17 % at one point from the previous October's record high before recovering. But it wasn't long before the market went into near freefall, dropping by 40% by the end of that year.
The Rosenberg Research founder, who is a market veteran of over 30 years, has repeatedly warned investors to prepare for a bear market. He cited the S&P 500's low dividend yield as one reason he's expecting a 17% downturn from its current level of just under 4,000 points.
"The dividend yield on the S&P 500 is a puny 1.5% — bear markets do not typically end until the dividend yield converges on the bond yield," Rosenberg said. "This arithmetically means a low for the S&P 500 closer to 3,300."
The yield on the 10-year Treasury is about 2.8%, meaning it's competing more effectively for long-term investor cash than the S&P 500. The last time the gap between the two was this wide was May 2018, Bloomberg data indicated.
Stocks surged over the past two years, but they've fallen sharply in 2022. Rosenberg said that equities' crash toward a bear market showed that the "past two years represented a fake bull market built on sand, not concrete."
Many economists have argued that the Federal Reserve's pandemic stimulus packages contributed to unrealistic stock-market valuations, and that their decision to start hiking interest rates risks leading to a crash.
Rosenberg echoed those concerns and criticized Jerome Powell, the chair of the Federal Reserve, whom he said "myopically focuses on 'job openings,' a very soft data point."
"The growth in money supply has literally collapsed and there is nary a pulse in money velocity," Rosenberg said. "Fiscal policy, in the span of a year, has shifted from radical stimulus to restraint that would cause the remnants of the Tea Party to blush."
The S&P 500 rallied 1.9% on Monday, but the futures market suggested the index could erase almost all of those gains at the opening bell later on as investors digest Snap's gloomy earnings forecast.