• David Rosenberg believes the US economy is headed for a recession.
  • Even if a recession is avoided, stocks are priced for a perfect soft-landing scenario, he said.
  • He likes Treasurys; Japanese stocks; and utilities, REITs, banks, and telecom stocks.

Renowned economist David Rosenberg thinks the US economy is hurtling toward a recession. 

All the classic indicators say so, even if bulls discount them like they’ve done before prior downturns. Look at the Treasury yield curve and The Conference Board’s Leading Economic Index, says Rosenberg, who called the 2008 recession.

Naturally, then, Rosenberg is bearish on the broader US stock market. But even if a recession doesn't come to pass, he still says there's probably little upside left in the current rally.

"When you started getting the CNN Fear and Greed Index north of 80, and you start seeing sentiment indices showing that there are three times more bulls than bears, and you look at a forward P/E ratio pressing against 20, and a CAPE valuation which recently went above 30, you know that the stock market is priced for perfection," Rosenberg, the founder of Rosenberg Research, told Insider last week.

He added: "Even if we could argue about a recession or a soft landing, you have Nirvana priced into the stock market as an asset class right now."

But fear not: there are still places where investors can find returns, he said — from bonds to international markets to certain pockets within the US stock market. 

7 places for returns as a recession looms

The first place Rosenberg said he's bullish on is the Treasury market. 

He recommended moving money from stocks an into a "barbell" of Treasury bills and bonds. Treasury bills have durations of one year or less, while Treasury bonds have durations of 20 years or more. A barbell strategy involves investing in two assets in equal amounts. 

He's bullish on short-term Treasurys because it's a way to stay relatively liquid while also earning a yield of more than 5%. As for long-term Treasurys, he says if a downturn will send rates falling as investors seek safety, meaning investors can sell them for a profit if they choose. Plus, the Fed has talked about cutting rates next year, he said, which also means bond prices would rise. 

Investors can buy Treasury bonds through Treasury Direct, or can gain exposure through ETFs like the iShares U.S. Treasury Bond ETF (GOVT), the iShares 0-3 Month Treasury Bond ETF (SGOV), and the iShares 20+ Year Treasury Bond ETF (TLT).

Rosenberg is also bullish on the Japanese equity market as a whole. After years of underperformance, he says he's long on Japan with valuations being attractive, dividend growth and payouts being strong, showing that the country is developing an "equity culture" where corporations are giving money back to shareholders.

"My favorite equity market globally has been, and remains, Japan. And I'm pretty sure that I've been there as long as Warren Buffett has," he said. "And that is a bonafide story. That is not a forecast or a guess or speculative. This is actually happening, that Japan today looks like the US of the early '80s."

The iShares MSCI Japan ETF (EWJ) is one way to invest in Japanese stocks. 

If one wants to stay within US stocks despite recessionary pressures, he said areas of the market that should benefit from falling rates are what he'd bet on. They include banks, utilities, REITs, and telecommunications firms.

Some ETFs offering exposure to these sectors include the SPDR S&P Regional Banking ETF (KRE); the Vanguard Utilities ETF (VPU); the iShares U.S. Real Estate ETF (IYR); and the Fidelity MSCI Communication Services Index ETF (FCOM).