The S&P 500 could nosedive 30% this year as a painful recession takes hold, top economist David Rosenberg says

• The S&P 500 could tumble 30% to around 2,900 points this year, David Rosenberg said.
• The Rosenberg Research chief said the US recession is only starting, and unemployment could surge.

Prepare for US stocks to plunge, unemployment to jump, and the economy to slump this year, David Rosenberg has warned.

Investors can weather the approaching storm by betting on gold, bonds, and tried-and-tested companies, he told MarketWatch in a recent interview. But they should avoid cryptocurrencies, the veteran economist and president of Rosenberg Research said.

A bleak outlook

"There's nothing right now in my collection of metrics telling me that we're anywhere close to a bottom," Rosenberg said, noting that he believes a US recession is only just beginning.

"The stock market bottoms 70% of the way into a recession and 70% of the way into the easing cycle," he continued, referring in the latter to when the Federal Reserve starts loosening its monetary policy to drive economic growth.

The US central bank is currently tightening its grip. It has hiked interest rates from almost zero to nearly 5% within the past year in response to historic inflation, and expects to lift them even higher in the coming months.

As a result, the benchmark S&P 500 index could nosedive this year by nearly 30% from its current level to around 2,900 points, Rosenberg said. He pointed to rising rates eroding the appeal of stocks relative to safer assets such as bonds and savings accounts. They also squeeze households' finances and spark layoffs, he said, putting pressure on consumer spending and therefore corporate earnings — a key factor in stock valuations.

Rosenberg also suggested unemployment may surge from 3.4% in January — its lowest level in half a century — to over 4.6%. On the bright side, he expects the economic downturn to curb inflation, freeing the Fed to stop hiking rates and potentially begin cutting them later this year. That could boost stocks and galvanize an economic recovery in the second half of 2024, he said.

Navigating rough seas

Rosenberg detailed how investors can navigate the choppy waters ahead.

The former chief North American economist at Merrill Lynch touted gold as an effective hedge against the US dollar weakening when rates eventually come down. Gold has intrinsic value and is widely viewed as a haven asset, potentially making it more resilient to inflation and a market downturn.

However, Rosenberg ruled out bitcoin and other cryptos as sensible bets.

"Cryptocurrency has been exposed as being far too volatile to be part of any asset mix," he said. "It's fun to trade, but crypto is not an investment."

Rosenberg noted that he's bullish on long-dated bonds, which typically benefit from rising rates. He also touted companies that sell staples such as food and energy, which tend to fare better in a faltering economy. Moreover, he singled out Microsoft, Amazon, and Alphabet as high-quality growth stocks that could outperform in the next bull market.

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