S&P 500 Inches Towards All-Time High, but Doom Looms in 2024, Warns Economist
The S&P 500 index is approaching its all-time high from January 2022, but according to economist David Rosenberg, this may not be a reason for celebration. Rosenberg, the founder of Rosenberg Research and a renowned forecaster who accurately predicted the 2008 recession, warns that the benchmark index could suffer a similar fate in 2024. Back in 2022, the index fell as much as 25% and closed the year down 20%.
David Rosenberg Predicts Poor Performance for S&P 500 in 2024
Rosenberg’s models are pointing to poor performance for the S&P 500 in 2024. In fact, his model suggests that the outlook for stocks is as weak as it can get. The model takes into account various factors such as stock valuations, investor sentiment, market technicals, investor positioning, and macro fundamentals. According to Rosenberg, the setup for 2024 looks eerily similar to how the market entered 2022, with extreme readings in positioning, sentiment, and technicals, along with worse fundamentals. He advises investors to lighten their exposure or establish proper hedges in order to mitigate potential losses.
Technicals and Valuations Point to Weak Outlook for S&P 500, Says Rosenberg
Rosenberg points to technical indicators that suggest a weak outlook for the S&P 500. The S&P 500 equal-weighted index, for example, is still below its 2022 highs and significantly underperforming the market cap-weighted index. This indicates that breadth, or the number of stocks participating in the market’s moves, is lagging. In addition, the Value Line Geometric Index, which measures the performance of the overall market’s median stock, has also performed relatively poorly. Valuations are also high, with the commonly used Shiller cyclically-adjusted price-to-earnings ratio at levels seen in 1929.
High Positioning and Poor Sentiment Raise Concerns for S&P 500 in 2024
Positioning in the market is historically high, with the share of household assets in equities reaching levels seen during the dot-com bubble. Investor sentiment, however, depends on the index being considered. CNN’s Fear and Greed Index, for example, shows that investors are still bullish. This contrarian indicator suggests that sentiment may be overly optimistic and may lead to market downturns. These factors raise concerns about the potential downside risks for the S&P 500 in 2024.
Recession Ahead? Rosenberg Sees Cracks in Labor Market and Waning Consumer Power
Rosenberg’s view is that a recession is on the horizon for the US economy. He points to indicators of weakening labor market conditions, despite the low unemployment rate. Slower hiring and a shorter workweek are early signs of cracks in the labor market, which often precede layoffs and economic recession. Poor sentiment from small businesses and signs of waning consumer power, such as rising delinquencies on credit card debt and auto loans, also contribute to the recession outlook. However, it’s worth noting that while Rosenberg’s view aligns with other notable forecasters, the consensus outlook suggests a soft-landing outcome for the US economy. The direction of the labor market and inflation data in the coming months will be crucial in determining the market’s future performance.
Analyst comment
Neutral news
As an analyst, I anticipate increased market volatility in the near future due to concerns raised by economist David Rosenberg. The S&P 500’s approach to its all-time high is overshadowed by predictions of poor performance in 2024. Technical indicators, valuations, high investor positioning, and poor sentiment are all factors contributing to this outlook. Additionally, signs of cracks in the labor market and waning consumer power raise concerns about a potential recession. The market’s future performance will depend on upcoming labor market and inflation data.
