CNBC
- There's a recession looming that threatens to hammer stocks, David Rosenberg says.
- The veteran economist said the potential sell-off makes 2022's decline look like an "appetizer."
- Labor hoarding and debt-fueled spending can't shore up the economy for much longer, he says.
The economy is barreling toward a recession — and it could trigger a stock-market meltdown that puts 2022 to shame, David Rosenberg warned.
"The rubber will meet the road in 2024, and the bull market in complacency will unravel as the recession few see, and few are positioned for, finally comes into view," the Rosenberg Research president wrote in a LinkedIn post on Tuesday.
"The painful drawdown in 2022 should serve as a reminder for what happens when recession risks get priced into the equity market — and that year didn't even see the real thing take hold," Rosenberg continued, referring to the S&P 500 plunging 19% and the Nasdaq Composite plummeting 33% two years ago.
"If that happens, think of what happened in 2022 as an appetizer," he added. "We went into that year filled with smug complacency and extended valuations, much like we have on our hands today."
Rosenberg, the former chief North American economist at Merrill Lynch, laid out why the economy defied his recession expectations in 2023, and why he views a prolonged downturn as inevitable based on recent economic data.
Last year, consumers blew through their savings and swiped their credit cards, businesses balked at laying off workers after weathering a labor shortage, and the federal government flooded the economy with money, he explained.
However, the personal savings rate plunged to 4% last year as "today's group of narcissistic YOLO consumers" splashed their stimulus cash, Rosenberg said. Outstanding credit-card balances also rose by almost 10% in 2023, and consumer credit-card delinquencies rose to 2012 levels, he noted.
"A recession averted as Main Street took a feather out of Wall Street's cap — leverage!" Rosenberg quipped. "Not even a 500 basis point interest rate shock could manage to derail a consumer addicted to debt."
Meanwhile, 1.8 million full-time jobs were replaced by part-time jobs in the second half of 2023, and the average working week got shorter, as labor-hoarding employers cut back to stave off layoffs, he said.
Gimmicks and discounts
The national deficit also grew by $365 billion to $1.8 trillion last year, Rosenberg noted, as the Biden administration rolled out a slew of tax breaks, subsidies, and other support as part of the Inflation Reduction Act and CHIPS Act.
The veteran economist questioned why retailers have "gone bonkers on gimmicks" and homebuilders are resorting to deep discounts to drum up demand if consumers are in great financial shape, and why the government is spending so aggressively if the economy is really in rude health.
Rosenberg also asked how much more fiscal stimulus is feasible, how consumers can keep spending, and how long until employers are forced to let workers go. He predicted those forces would falter, paving the way for a recession that threatens to deal a devastating blow to the stock market.