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Top economist David Rosenberg warns the bear market rally in stocks won't last - and says consumers are running short of cash

Oct 18, 2022, 21:53 IST
Business Insider
David Rosenberg.Rosenberg Research & Associates
  • David Rosenberg dismissed the latest rebound in stocks as a bear-market rally that won't last.
  • He noted there have been six similar rallies this year, yet the S&P 500 is still down about 22%.
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David Rosenberg has dismissed the latest US stock-market rally as a temporary reprieve for investors, and warned American consumers are running short of cash.

"It's got all the hallmarks of a bear market rally, we've seen six of these already," the Rosenberg Research founder told CNBC on Monday, after the S&P 500 closed 2.7% higher and the Nasdaq gained 3.4%. Both indices were up another 1.9% on Tuesday at last check.

Rosenberg noted the S&P 500 is still down about 22% this year, despite seven bear-market rallies so far. He expects the latest bounce in stocks to be short-lived as well.

"There was nothing fundamental about yesterday's rally," he said in a morning note Tuesday. "The economic backdrop has not changed.

"With earnings season picking up in the coming days and weeks, our expectation remains that S&P 500 earnings trends, and guidance, will disappoint — fueling the next leg lower for the stock market."

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The Rosenberg Research chief has previously said the stock market tends to find a bottom 16 months after the Federal Reserve stops hiking interest rates, so he doesn't expect a recovery until late next year or 2024.

During the Monday interview, Rosenberg dismissed Bank of America CEO Brian Moynihan's comments that many consumers saved money during the pandemic, and that their bank balances are yet to shrink significantly.

"That cushion is subsiding at a very quick rate," he said about the boost to household finances provided by stimulus checks and other government aid.

Rosenberg emphasized that inflation, which hit a 40-year high of 9.1% in June, continues to erode the purchasing power of dollars.

He also pointed out that real US retail sales shrunk by 2% on an annualized basis in the third quarter, credit-card balances have surged, and consumers have started cutting back on nonessential items in favor of food, medicine, and other necessities.

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Read more: GOLDMAN SACHS: Buy these 12 stocks that Wall Street is underestimating — setting the stage for outperformance in 2023

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