Market Is Priced Way Ahead Of Itself According To Rosenberg

David Rosenberg made some good points…….

Let’s examine what the macro landscape usually looks like at that magical +49% point in the equity market rally:… In the last cycle (2002), we didn’t see this type of performance until 18 months into that bull phase

• Real GDP had expanded on average by 4.5%
• Employment had rebounded an average of 850k
• The ISM had firmed to an average of 56.2 (the lowest print by this juncture was 53.9)
• Corporate profits had recovered 12.0%
• Bank lending rose an average of 5.0%

In other words, the market is way ahead of itself, because, as of the latest data points during this 49% rally:

• The equity market right now is priced for 4.0% real GDP growth and a 40% profit growth in the coming year
• Real GDP is trying to make a cycle low
• Employment is trying to make a cycle low
• The ISM is off the low but still sub-50 at 48.9
• Corporate profits are still trying to make a cycle low
• Bank lending is still trying to make a cycle low

We have never before witnessed a stock market rally of this magnitude over such a short time frame; and absent anything more than tentative signs of economic improvement. The only rally of this magnitude was the wild bear market rally ride in 1930, which was followed by a resumption of the decline that finally bottomed 82% lower in 1932.

Rosenberg tells it like it is !

Source (Gluskin/Sheff)

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