We're nowhere near a market bottom and stocks won't hit a low until the yield curve improves and the Fed stops tightening, top economist David Rosenberg says
- We're nowhere near a market bottom, economist David Rosenberg told CNBC.
- He pointed to the inverted yield curve and continued Fed tightening, which both prevent stocks from hitting a low.
Though some investors are still cheering the good inflation news earlier this month as a signal the worst is over, we're still nowhere near a market bottom, according to top economist David Rosenberg.
The head of Rosenberg Research warned that stocks won't hit a low until the yield curve shows signs of normalizing and the Federal Reserve stops its tightening regime, which has so far lifted rates by 375 basis points this year. That has caused yields on the 2-year Treasury to surpass that of the 10-year Treasury – a notorious recession bellwether.
"The historical record is pretty simple that bear market bottoms happen 70% of the way into the easing cycle, when the Fed has resteepened the yield curve into a positive shape. We're nowhere near close to that," Rosenberg said in an interview with CNBC on Tuesday.
"In terms of identifying the real low, it doesn't happen when the yield curve is inverted and the Fed is still tightening policy," he later added.
Stocks are still being boosted by the October consumer inflation report, but prior gains have faltered earlier this year on persistent inflation and continued hiking from the Fed, Rosenberg said.
Previous bear market rallies have typically lost steam around the 200-day-moving average, he added, as was the case in the most recent rally in August.
Some investors are optimistic on recent dovish comments from Fed officials, which have suggested slowing down from 75-basis-point rate hikes to a 50-basis-point rate hike in December. But that's still a restrictive monetary policy, Rosenberg said, considering signs of weakness in the US economy.
Other top economists, like Paul Krugman, have urged the Fed to completely pause its rate hikes in December, given the lag in monetary policy and the potential of overtightening the economy into a recession.
Rosenberg has been a loud critic of the Fed's response to inflation, previously saying that the aggressive pace of tightening meant a recession is a "sure thing." That's largely because central bankers waited too long to hike rates and are now waiting too long to stop, he said.
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