Market Turned Up Roses In 2024 with David Rosenberg
On The Tape
Deep Dive
Why did David Rosenberg write the 'Lament of a Bear' report?
Rosenberg wrote the report to reflect on his stock market predictions and identify what he missed, particularly the impact of AI and generative technologies on market performance. He aimed to understand why the market rallied despite his bearish outlook.
What was the key factor Rosenberg underestimated in his market predictions?
Rosenberg underestimated the power of the AI trade, which gained significant momentum starting in May 2023 with Nvidia's strong performance. This led to a significant expansion of market multiples, driven by investor confidence and the growth of AI-related stocks.
How has the market multiple expanded in 2024, and what does this indicate?
The market multiple expanded by five points, from 17 to 22, which is a two standard deviation event. This expansion reflects strong investor confidence and animal spirits, driven by the AI trade and other factors, leading to a multiple-driven market rather than an earnings-driven one.
What does Rosenberg believe about the potential for 20% annual earnings growth over the next five years?
Rosenberg doubts that 20% annual earnings growth is achievable over the next five years. He considers it a 1 in 20 event historically and believes that much of this growth is already priced into the market, making it a risky bet.
What concerns Rosenberg about the current market environment?
Rosenberg is concerned about the high concentration of risk in the equity market, with 70% of household financial assets in equities and low cash holdings. He worries about a potential stampede to exit the market if confidence wanes, leading to a lack of buyers and significant market corrections.
How does Rosenberg view the current equity risk premium (ERP) and what does it signify?
Rosenberg sees the equity risk premium as being close to zero, meaning investors are treating equities as if they carry no more risk than risk-free assets like Treasury bills. This reflects extreme confidence but also complacency, as it assumes no one will sell their stocks in the future.
What does Rosenberg expect from the Federal Reserve in terms of interest rate policy in 2025?
Rosenberg expects the Federal Reserve to cut interest rates more aggressively than currently priced in, potentially bringing the funds rate below 3% by the end of 2025. This would be driven by disinflationary pressures and a cooling economy.
What indicators does Rosenberg believe could signal an imminent market correction?
Rosenberg believes that signs of reduced guidance, missed earnings, or order cancellations from major companies, similar to what happened during the TechRec in 2000, could signal a market correction. These events would indicate that the market has priced in too much growth and confidence.
How does Rosenberg view the current state of passive investing and its impact on the market?
Rosenberg views passive investing as a significant driver of market trends, with nearly 60% of market capitalization now dominated by passive index funds. This has created a self-fulfilling prophecy where fund flows drive market performance, but it also increases concentration risk.
What alternative investments does Rosenberg recommend as a hedge against equity market risk?
Rosenberg recommends considering investments in gold and Japanese equities, which have performed well and offer diversification. He also sees potential in bonds, particularly if the Federal Reserve cuts rates as expected.
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