Top Economist David Rosenberg Sounds Alarm As More Stocks In Red Than Green Spark Worry Over Current Rally Stability

The stock market has experienced a rare occurrence, raising concerns about the sustainability of the current rally. This development has been flagged by a leading economist, who has also highlighted the potential risks associated with the overvalued tech sector.

What Happened: On Friday, the S&P 500 reached a record high, and the Nasdaq experienced a significant surge. However, the number of stocks in the red exceeded those in the green, a phenomenon not seen since 1987, reported Business Insider on Monday.

David Rosenberg, a prominent economist, pointed out that this imbalance, combined with the dominance of a select few tech stocks, is reminiscent of the dot-com bubble. He warned that this could be a sign of an impending market correction.

On Friday, “only half the sectors were up in the ripping session, and we had to do a ‘double take’ after seeing that the A-D line was negative on Friday, even in the face of the +1.1% rise in the S&P 500,” he wrote in a note on Monday.

“This is not ideal,” Rosenberg added.

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Rosenberg also highlighted the poor market breadth, indicating that the current rally should be approached with caution. He noted that the overvaluation of stocks has led to weaker returns for investors compared to three-month Treasury bills, which is unusual as stocks are generally considered riskier assets.

Despite hopes for a soft landing, Rosenberg emphasized that the current market conditions are significantly different from the past, particularly in terms of valuation. He suggested that the market may be heading for a correction, especially given the limited options for investors in the current stock-picker’s market.

Why It Matters: The current market situation is reminiscent of the years leading up to the 1929 crash, according to a warning from Robert Prechter, the founder of Elliot Wave International. He believes that investors have become too complacent, and the market conditions are similar to those before the 1929 crash.

Thirty-six years ago, on Oct. 20, 1987, the day after Black Monday, the market experienced a similar imbalance, as noted by David Rosenberg. The market lost $500 billion that day, and the S&P 500 surpassed 20% in losses.

Despite the hard data pointing to fairly robust growth, a section of the economists have been sounding out recession warnings. On Wednesday, David Rosenberg, founder of Rosenberg Research & Associates, repeated his assertion of an imminent recession, backing his prediction with a data point.

Earlier, in January, Rosenberg had criticized the volatile nature of cryptocurrencies like Bitcoin, saying that they are more akin to gambling than sound investing.

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