'It's As If The Whole Country Takes A Pay Cut:' Top Economist Warns Of A Recessi...

Fears of a recession have mounted since the U.S. Federal Reserve began hiking interest rates in early 2022.

Although the latest gross domestic product (GDP) figures indicated growth, a recession could be imminent according to David Rosenberg, president of Rosenberg Research and former chief North American economist at Merrill Lynch.

“The leading indicators are telling me that the recession is actually starting this quarter,” he said in a recent YouTube interview with Blockworks Macro. “If it’s not this quarter I think it’s next quarter. It’s certainly not a 2024 story.”

With rampant inflation, many Americans are grappling with wages that struggle to keep up with the rising cost of living. Should a recession materialize, it could result in greater financial hardships.

“A recession is a very big call because it is actually a haircut to national income. It's as if the whole country takes a pay cut,” Rosenberg explains. “It's not that we take the Lamborghini from 80 down to 20. It's that we go in reverse.”

Meanwhile, a recession could also spell trouble for the stock market.

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Downside Ahead

Stocks had a terrible run in 2022, with the S&P 500 plunging 19.4%. While they’ve bounced back a bit in 2023 — the benchmark index is up 9% year to date — Rosenberg doesn’t believe the turmoil is over.

“I am bearish on equities as an asset class,” Rosenberg said, adding that he doesn’t believe “a recession is fully priced in.”

The reason behind his negative outlook on equities has to do with valuation.

“I don’t like the valuations. I mean, we’re pressing against a 19 forward multiple,” he said, referring to the forward price-to-earnings ratio. “So what does that get you? Like 5.3% as an earnings yield. I can pick up 5.4[%] in single-A triple-B corporate credit ... wind up in a better part of the capital structure.”