MacroVoices #372 David Rosenberg: The Bear Market Bottom Is Not In

Episode Summary

Executive Summary: David Rosenberg argued that markets are pricing an unjustified soft landing while a U.S. recession is already beginning, driven by tight monetary policy and worsening credit conditions. He remained bearish on equities, constructive on gold, skeptical of durable secular inflation, and cautious on commodities and China’s global impact. The post-game chart review saw bullish-but-narrow equity breadth, subdued volatility, range-bound dollar action, and a still-positive longer-term gold trend.

Main Topics: Recession now underway (Priority: 5/5): Rosenberg contends the U.S. economy is already entering recession, citing weak retail sales volumes, industrial production, labor-market leading indicators, rising jobless claims, and the lagged effects of aggressive Fed tightening. Equity market overvalued and vulnerable (Priority: 5/5): He argues stocks are priced for a soft landing and Goldilocks scenario, but a recession would imply lower earnings and a materially lower S&P 500, with October 2022 lows likely to break. Gold bullish case remains intact (Priority: 5/5): Rosenberg says gold should benefit from lower real rates and a weaker dollar as the Fed nears its hiking endgame and the market begins pricing cuts for 2024. Post-game analysis agreed the long-term trend remains constructive despite near-term overbought conditions. Inflation likely to keep slowing (Priority: 4/5): He said pandemic inflation has peaked and is trending lower, with rental inflation expected to roll over as new supply hits the market. He dismissed strong secular inflation narratives as overdone. Credit tightening and regional bank stress (Priority: 4/5): He sees the banking fallout as a credit availability problem rather than a 2008-style systemic crisis. Regional banks and commercial real estate are the key pressure points, and tighter lending should weigh on growth. China recovery is limited in global scope (Priority: 3/5): Rosenberg viewed China’s reopening as positive mainly for travel, tourism, and select sectors, but not enough to materially lift the broader global economy given weak manufacturing and ongoing property/debt problems. Market technicals and positioning (Priority: 3/5): The post-game section focused on key levels in the S&P 500, Nasdaq, VIX, dollar, gold, Treasury yields, and credit ETFs, highlighting narrow leadership, low volatility, and possible range breakouts or reversals.

Key Arguments: The stock market is pricing a soft landing and a high multiple, but a recession would compress earnings and valuation simultaneously, creating downside toward the S&P 500 3,000 area. The yield curve inversion and rate hikes work with long lags; since the curve inverted last July, recession timing is consistent with the current quarter. Rising jobless claims, weaker retail sales volumes, lower industrial production, and softer leading labor indicators are consistent with recession starting now. Inflation is a process and should continue falling, especially as rent components lag current market conditions and new apartment supply hits vacancy rates. Gold’s key drivers are lower real rates and a weaker U.S. dollar; de-dollarization may be a supporting factor but is not the core driver. The banking issue is not 2008/09, but tighter lending standards and commercial real estate stress will still restrain credit and slow the economy. China’s reopening is more a regional services/travel story than a broad global growth engine, because manufacturing and property remain weak.

Data Points: S&P 500 close: 4178 - Week-over-week close as of April 19, 2023 in the macro scoreboard S&P 500 weekly change: +1.2% - Week-over-week performance reported in the opening scoreboard U.S. Dollar Index close: 101.94 - Week-over-week scoreboard; dollar up 0.4% WTI crude oil (June) close: 79.24 - Week-over-week scoreboard; down 4.6% Gold close: 2007 - Week-over-week scoreboard; down 0.9% but above $2,000 Copper close: 408 - Week-over-week scoreboard; flat, as spoken in the transcript Uranium close: 51.20 - Week-over-week scoreboard; up 0.2% U.S. 10-year Treasury yield: 3.59% - Week-over-week scoreboard; up 19 basis points Flash PMI date: Friday after the episode - Key near-term macro release flagged by the hosts Expected S&P recession valuation: ~16x earnings - Rosenberg's estimate of a recession trough multiple Rosenberg recession earnings estimate: ~$185 EPS - Rosenberg’s rough earnings assumption in a recession Potential S&P 500 downside target: ~3,000 - Rosenberg’s end-point estimate if recession and valuation compression occur Current S&P forward multiple: ~19x - Rosenberg argued the market is currently expensive Retail sales volumes: Negative in February and March - Evidence Rosenberg cited for recession onset Industrial production: Negative in March - Evidence Rosenberg cited for recession onset Initial jobless claims: Up 50,000 from cycle lows - Rosenberg said this resembles conditions seen before the 2008 recession Yield curve inversion start: July 2022 - Rosenberg argued the 10-12 month lead points to recession now Apartment vacancy rate: ~4% to 7% - Rosenberg noted rising vacancies as rental inflation should ease Multifamily units under construction: ~960,000 annual rate - Rosenberg highlighted a large pipeline of new rental supply Commercial real estate vacancy rate: >18% - Rosenberg used this to support concern about bank exposure and defaults SPX key resistance: 4,200 - Post-game technical level identified by Nick Galarnick SPX key support: 4,100 and 4,000 - Post-game technical levels identified by Nick Galarnick SPX implied move into May 19 OpEx: ~140 points - Post-game options-based expected move QQQ spot price: ~317 - Post-game NASDAQ discussion QQQ key resistance: 320 - Post-game technical level QQQ key support: 300 - Post-game technical level VIX context: Near 2021 lows - Post-game noted unusually subdued volatility Dollar key downside trigger: Below 100 - Post-game said a daily close below 100 would signal a larger leg down Gold support: 2,000 - Post-game round-number support Gold near-term resistance: 2,060 to 2,080 - Post-game range given by the hosts 10-year yield resistance area: Below 3.75% - Post-game view that yields may reject before 4%

Pivotal Quotes: "I think that a recession is actually already starting this quarter." — David Rosenberg: Core macro thesis on growth and the business cycle "If we get a recession, a classic plain vanilla recession, mild recession, would still mean a 20% hit to earnings... you're down towards 3,000 on the S&P 500." — David Rosenberg: Bearish equity framework using earnings and valuation compression "Gold's going to go to new highs and not based on anything other than lower real rates and a weaker U.S. dollar." — David Rosenberg: Bull case for gold over the next 12 months

Implications: Listeners should expect recession risk to dominate markets, favoring caution on equities and cyclicals, while remaining constructive on gold and alert to credit tightening, especially in regional banks and commercial real estate.