Renowned forecasters Gary Shilling and David Rosenberg have been making bold predictions about the stock market and the economy for years. In a recent warning, Shilling predicted a 30% crash in stocks, an imminent recession, and a collapse in commercial real estate. While some of his forecasts have been accurate, others have missed the mark. Let’s take a closer look at Shilling’s predictions since the pandemic struck in early 2020 to see how they have played out.
Gary Shilling, a veteran market forecaster, has made several predictions about the stock market and the economy. He correctly predicted the stock market crash in March 2020 but dismissed the inflation threat a year later. Despite his warnings, the S&P 500 reached record highs in 2021 and has rallied since then. Shilling was skeptical of meme stocks, crypto, and SPACs, which fell out of favor, but Big Tech stocks like Microsoft and Amazon are trading at record highs. He was also wrong on inflation, which surged to a 40-year high, and consumer spending, which continues to buoy the US economy. Shilling's forecast of a recession and a bear market has not materialized, as the global economy has escaped recession, consumer spending has held up, and stocks have advanced strongly. The Federal Reserve has not raised interest rates as Shilling predicted. Overall, Shilling's predictions have been largely incorrect.
David Rosenberg, President of Rosenberg Research, admits to being wrong about his prediction of a broad bet on U.S. stocks and acknowledges that the S&P 500 Index has surged 45% to all-time peaks over the past 18 months. While some of his specific investment calls have worked out well, his forecasting prowess failed on the benchmark U.S. stock index. He remains convinced that markets are heading for a fall and that the U.S. and Canadian economies will both be in a recession before the end of the year. Rosenberg recommends dialing back equity exposure and investing in bonds, particularly 30-year bonds, as he believes the rate cycle has peaked and short-term rates will come down. He also maintains his highest conviction investment idea in Japanese equities, citing the fundamental tailwind and under-ownership by local investors.
In a recent warning, Gary Shilling predicts that the US will experience a recession by the end of the year, which could lead to a 30% drop in the stock market. Shilling points to warning signs of a downturn, such as a weaker job market and overconfidence in risky assets. He believes that the recent run-up in stocks and cryptocurrency is indicative of overconfidence and that a correction is imminent. The economy has already shown signs of weakness, with high interest rates taking a toll and the labor market weakening. Shilling predicts that layoffs will escalate later this year, with unemployment peaking at 5% to 7%. He also highlights recession indicators, such as the 2-10 Treasury yield curve, which has been signaling a downturn since July 2022. Shilling's bearish outlook is based on his belief that people are overly optimistic in the face of contrary evidence. Overall, he warns investors to be prepared for a recession and a potential stock market crash.
In light of the potential risks and losses, Gary Shilling advises investors to follow five rules to navigate the current investing environment. First, he suggests hedging against future headwinds by diversifying investments and considering defensive assets like bonds and gold. Second, he advises caution with stock investments, as high valuations and potential market downturns pose risks. Third, Shilling emphasizes the importance of diversifying portfolios to spread risk and protect against losses. Fourth, he warns against excessive speculation, particularly in risky assets like meme stocks and cryptocurrencies. Finally, Shilling recommends focusing on conservative investments that prioritize capital preservation over high returns. These rules aim to help investors prepare for future headwinds and mitigate potential losses in an uncertain and risky investing climate.
David Rosenberg, President of Rosenberg Research & Associates Inc., joins the 'Barron's Roundtable' panel to discuss his cautious take on the economy and what conventional wisdom is getting wrong. He presents a bearish outlook for the market [88aa61b8].