Hello to all the future-forward entrepreneurs and shrewd investors out there! Today, we’re shedding light on some insightful commentary from veteran economist David Rosenberg, who’s sharing a cautionary tale for tech-stock enthusiasts, drawing eerie parallels with the dot-com bubble of yesteryears.
Rosenberg, the chief at Rosenberg Research, is seeing ghosts from the past in the current investor enthusiasm for tech stocks. In a recent LinkedIn post, he called out a startling number of similarities between the internet mania that rang in the new millennium and the ongoing fervor surrounding artificial intelligence and other cutting-edge technologies.
What’s setting off alarm bells for Rosenberg? The hyper-focus on tech stocks, soaring valuations of certain growth stocks, and an investor base that seems to have a Teflon coat when it comes to crises (whether that’s the sudden downfall of Long-Term Capital Management in the ’90s or our recent banking fiasco).
Rosenberg, the former chief North American economist at Merrill Lynch, also highlighted factors like the tenacity of the S&P 500, the extremely tight labor market, sharp interest rate hikes by the Federal Reserve, an enduring yield-curve inversion, and widespread investor optimism for a “soft landing” – factors prevalent now, as they were in the days leading up to the dot-com crash.
Speaking on the AI revolution and the dot-com boom, he cautioned that “while both have had massive economic and productivity impacts, both also spawned financial asset bubbles that burst spectacularly.”
Rosenberg warned of a rising tide of over-optimism among investors, reminiscent of the sentiment that preceded the dot-com burst. Case in point? The tripling of Nvidia’s stock price this year, taking its market cap past the $1 trillion mark. Similarly, stocks of Tesla, Meta, and other tech biggies have more than doubled.
Is history repeating itself? According to Rosenberg, the complacency that marked the year 2000 looks uncannily like our present situation, and he believes a recession might be “knocking at our door.”
The inverted yield curve is currently indicating a 99% chance of a recession, suggesting, based on past economic cycles, that we could see a downturn before this year is out.
Rosenberg also pointed out that government stimulus during the pandemic has artificially boosted household savings, softening the impact of rising borrowing costs and staving off economic downturn so far. However, as he puts it, this “Energizer Bunny is starting to run out of gas,” citing sagging business outlooks among several leading US retailers and restaurants.
With a slowing economy, Rosenberg predicts the Fed could start slashing rates by the fourth quarter of this year. Furthermore, he warns that current historic inflation could quickly morph into deflation as the US money supply contracts and bank credit continues to wane.
Having been sounding the alarm on asset prices and the US economy for months now, Rosenberg previously predicted the S&P 500 bottoming at 3,000 points — a fall of 31% from current levels — and a possible 25% drop from last year’s peak in house prices.
Are we witnessing a déjà vu moment in the market? Only time will tell. As always, a heads-up to investors: it’s wise to listen to all perspectives, analyze the data, and make educated decisions about your investments. Happy investing, folks!