Economist Forecasts Recession and Further Stock Drop, Opportunities for Cash-Ready Investors

Fears of a looming recession have intensified since the U.S. Federal Reserve began raising interest rates in early 2022. Despite recent GDP growth figures, David Rosenberg, President of Rosenberg Research and former Chief North American Economist at Merrill Lynch, suggests that a recession may be imminent. In a recent interview with Blockworks Macro on YouTube, Rosenberg points to leading indicators that suggest the recession may begin as early as this quarter or the next, rather than in 2024. Alongside financial concerns, rising inflation rates are causing many Americans to struggle with increasing living costs and stagnant wages. Should a recession emerge, it could worsen these financial challenges.

According to Rosenberg, a recession has major implications on national income as it amounts to a significant reduction in payments for the entire nation, rather than just a few individuals. The impact of the recession could also be felt in the stock market which poses potential challenges in 2023. If you are anticipating a recession in 2023, consider reading some of the related stories from Benzinga: Why Warren Buffet’s Investment Strategy Matters in the Current Real Estate Market and This Fund is Expected to Offer Moderate Returns if the Real Estate Market Fails or Outstanding if it Flourishes. Despite a slight bounce back from the rock bottom performance in 2022 where the S&P 500 plummeted by 19.4%, Rosenberg warns that the market has not fully recovered. He predicts potential negative consequences for equities as an investment, citing concerns over valuation issues. While the forward multiple prices against a historical 19, equities may not be entirely priced in, thus creating further challenges. His pessimism is rooted in the fact that even investment-grade corporate bonds of lower triple B classification are now yielding decent returns, competing well with the earnings yield of stocks. Unlike shareholders who have a lower claim in a company’s assets and income, bondholders have a higher legal standing, making corporate credit a potential gold mine for investors.

With interest rates on the rise, investors seeking yield have numerous opportunities available to them. While savings accounts often offer high interest rates, private credit investments can provide even larger yields for those looking to diversify their portfolios beyond savings accounts or CDs.  David Rosenberg, President of Rosenberg Research, predicts that the U.S. economy will enter a recession, leading to a potential 20% hit to earnings and a market multiple bottom of 15 or 16. He has a price target of approximately 3,200 for the S&P 500, implying a downside of 23% from its current level of 4,169. However, Rosenberg sees a silver lining, stating that investors with dry powder and liquidity will be able to purchase assets at better levels during the recession. Rosenberg currently has a low weighting in equities and is instead invested in long-short strategies, bonds, gold and alternative assets that are noncorrelated to GDP. Retail investors can tap into recession-resistant assets such as real estate with as little as $100, which can provide a passive income stream and help diversify their portfolios.