The recent rally in the S&P 500, which lifted the index to new record highs, has encouraged investors and raised hopes for further stock market gains. However, as Rosenberg Research founder and president David Rosenberg warns, optimists could face serious disappointment.
Rosenberg pointed out the extremely inflated price-to-earnings-per-share ratio of the S&P 500. He also reported that the so-called Buffett indicator, which reflects the ratio of the total value of the US stock market to quarterly GDP, has risen to 198%. This indicator was named after investor Warren Buffett, who once warned of the risks of buying stocks when the indicator grows above 200%.
Moreover, there are worrying signs in the US economy. The slowdown is seen in the real estate, goods exports, consumption, and manufacturing sectors. At the same time, import tariffs are rising. These factors together increase the likelihood of a recession, Rosenberg believes.
His view is supported by Gary Shilling, president of A. Gary Shilling & Co. and former chief economist at Merrill Lynch. He estimated the probability of a recession in the US next year at 60% and emphasized the vulnerability of the S&P 500 outlook.