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Yesterday, renowned economist David Rosenberg released a report reiterating his prediction for an impending recession by late 2023 or early 2024.
Drawing parallels between the current financial climate and the 1999-2000 period - which was followed by a significant downtrend in equity valuations and bond yields - Rosenberg underlines various symptoms suggesting a looming economic downturn.
Ultimately, Rosenberg maintains his stance that the current economic cycle is nearing its end, with potential significant implications for equities and bonds.
Key Takeaways:
The current financial climate is comparable to the 1999-2000 period, which preceded a downtrend in equity valuations and bond yields.
Features of this comparison include extreme sector concentration, notably in technology, very high valuations, recovery from a crisis, a tight labor market, and a significant Fed tightening cycle.
There's an ongoing frenzy around AI, similar to the Internet mania of the late '90s, which could generate asset bubbles.
Despite the perceived economic resilience, signs point towards a potential recession. Historical patterns suggest that we could be nearing the end of the current economic cycle, with serious implications for equities and bonds.
The belief in consumer resilience seems misguided, considering that several large-cap retailers, including Walmart, Best Buy, and Home Depot, have either missed or underperformed their guidance.
It is expected that the Fed will pause despite high inflation and low unemployment, a condition which usually precedes the peaks of inflation and the lows of unemployment.
The yield curve inversion resulting from the Fed tightening cycle is a traditional indicator of an upcoming recession, potentially signaling one by the third or fourth quarter of this year.