David Rosenberg Sees Similarities Between Tech Bubble and Current Market
Economist and Rosenberg Research founder David Rosenberg believes the current market environment is unsustainable, according to Business Insider.
US markets are back at all-time highs, rallying over 50 percent since March intraday lows. However, there are many still skeptical about the economy and a potential new bull market.
Rosenberg is one of those individuals. He believes this rally is unstable and that it resembles the tech bubble from the early 2000s. "The point I'm making is that an ownable bull market is premised on fundamentals and valuations. We don't have those," he said.
"We have the technicals; True. We have momentum; It's true. But the most dominant force right now is liquidity — and so this is a liquidity-driven bull market."
The liquidity is being provided by the Federal Reserve. The central bank’s response to the pandemic has supported credit markets and empowered investors to partake in risky investments. Furthermore, current stock-market valuations are similar to the tech-bubble.
Rosenberg is even more concerned about the big-tech companies that have benefited tremendously from the pandemic. He is concerned that value stocks only make up 20 percent of the S&P 500, compared to the historical average of 45 percent.
"The most egregious this extreme got in the dot com bubble in the late 90s was 30%," Rosenberg said in a recent note.
"I don't know what causes the mean reversion trade or when it will come, but it will come as it did in 2000, 2001 and 2002. As Herb Stein famously said, anything that can't last forever, won't."
Rosenberg believes inflation could turn the market upside down. Inflation would increase bond yields and bring valuations to earth for high-growth stocks. This would affect the overall market since growth stocks would drag.
"The situation is fluid — the best strategy, if you have ridden the growth wave in recent months, is to take some chips off the table. Bulls win; bears win; pigs get slaughtered," he said.