‘Eerily similar to 2022’: Why this veteran strategist is ‘max bearish’ on U.S. stocks

Also on that bearish side is our call of the day from David Rosenberg, a veteran strategist who says his firm is now “maximum” bearish on U.S. stocks, citing some troubling recent history.

“The setup for 2024 is looking eerily similar to how we entered 2022, with positioning, sentiment, and technicals all at extreme readings – matching what we saw in December 2021 (and with worse fundamentals to
boot),” said the president of Toronto-based Rosenberg Research and his team that includes Marius Jongstra and Bhawana Chhabra, in a note.

The S&P 500
SPX
finished 2022 with a 19% loss, its biggest since 2008.

Here’s Rosenberg’s chart:

Rosenberg’s bearish views last year included an early 2023 call for stocks to lose 30% and a persistent recession forecast. But he also predicted in September that the Nasdaq would see a peak in December-January, which could be on the right track judging by the action this year so far.

So where to hide for now? The strategist sees financials — due to kick off earnings this week — as the clear top pick for investors and among the cheapest as far as valuations go. “Historical analysis shows this group to be a strong performer during both the Fed pause and disinflation periods,” he said.

“While recession risks do loom over the sector, investors can look toward the larger banks (well-capitalized) and insurance companies (stable earnings growth; better valuations) beneath the surface,” said Rosenberg.

And outside of financials, the strategist says energy, communication services and utilities all are tied for second place.

He also weighs in on bonds, saying with markets pricing in about six Fed rate cuts, a chunk of the pivot call is already “in the price.” Other headwinds include the 10% gain seen for the 10-year Treasury since October. While not a sell recommendation, he says it may be time to “digest market moves.”

“With front-end T-bills still paying [approximately] 5.25%, investors can consider locking in these yields following the run-up we have experienced to date on the long end.”

Read: Former bond king Bill Gross says 10-year Treasury ‘overvalued’

Rosenberg also said they turned constructive on commodities in December, with their model score reaching its highest since July 2022. However, energy is not in the mix apart from natural gas, as they prefer food/agricultural, with wheat, cotton, corn and soybeans at the top.

The strategist said they rightly timed a bullish turn on gold last fall, but are fading that, citing investor crowding and overbought technicals.

The markets

Stocks
DJIA

SPX

COMP
are in the red, led by tech, as Treasury yields
BX:TMUBMUSD10Y
creep up. Elsewhere, oil
CL.1,
+1.37%
is up over 1% and gold
GC00,
-0.07%
is also moving up. The Nikkei 225 index
JP:NIK
hit a new 33-year high, in a mixed day for Asia.

The buzz

Juniper Networks stock
JNPR,
+22.10%
is up 22% after The Wall Street Journal reported late Monday that Hewlett Packard Enterprise
HPE,
-7.90%
is in advanced talks to buy the tech group for $13 billion.

Match Group
MTCH,
+4.96%
is rallying on a report activist investor Elliott Management wants changes.

Samsung Electronics
005930,
-2.35%
 forecast plunging fourth-quarter profit.

Netflix
NFLX,
-0.92%
shares were cut to hold by Citigroup, whose analysts cited worries over revenue and spending, but kept a $500 price target. The stock is down 2%.

Urban Outfitters stock
URBN,
+8.05%
is up 5% after the retailer reported a 10% rise in annual sales over the holidays. 

Deutsche Bank upgraded JPMorgan Chase 
JPM,
-0.70%
to buy from hold and cut Wells Fargo 
WFC,
-1.46%
to hold from buy, ahead of earnings from banks and others on Friday. 

United Airlines
UAL,
+1.58%
found loose bolts and “installation issues” upon inspecting some Boeing
BA,
-1.23%
737 Max 9 planes following last week’s midflight blowout. Boeing shares are off slightly, after dropping 8% on Monday.

Data showed the U.S. trade deficit shrank in November. Fed Vice Chair for Supervision, Michael Barr will speak at 12 noon. Fed governor Michelle Bowman said she now thinks inflation could ease without more rate hikes.

France has named its youngest and first openly gay prime minister, Gabriel Attal.

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