- Economist David Rosenberg said the S&P 500 could fall another 17% to 3,300 points in a recent op-ed.
- "The past two years represented a fake bull market built on sand, not concrete," he said.
- Rosenberg also compared this market to the summer before the 2008 financial crisis.
The S&P 500 will crash a further 17% to 3,300 as stocks enter a prolonged bear market that's comparable to the run-up to the 2008 financial crisis, according to famed economist David Rosenberg.
"I feel like I am reliving the summer of 2008," he wrote in a Monday MarketWatch op-ed. "The stock market is following a familiar pattern of a recessionary bear market."
By late May 2008, before the extent of the problems of the subprime lending market were apparent, the S&P 500 had narrowly averted falling into a bear market, having dropped by 17 % at one point from the previous October's record high before recovering. But it wasn't long before the market went into near-freefall, dropping by 40% by the end of that year.
The Rosenberg Research founder, who is a market veteran of over 30 years, has repeatedly warned investors to prepare for a bear market. He cited the S&P 500's low current dividend yield as one reason he's expecting a 17% downturn from its current level of just under 4,000 points.
"The dividend yield on the S&P 500 is a puny 1.5% – bear markets do not typically end until the dividend yield converges on the bond yield," Rosenberg said. "This arithmetically means a low for the S&P 500 closer to 3,300."
The yield on the 10-year Treasury is currently around 2.8%, meaning it is competing more effectively for long-term investor cash than the S&P 500. The last time the gap between the two was this wide was May 2018, according to Bloomberg data.
Stocks surged over the past two years, but have fallen sharply in 2022. Rosenberg said that equities' crash towards a bear market showed that the "past two years represented a fake bull market built on sand, not concrete."
Many economists have argued the Federal Reserve's pandemic stimulus packages contributed to unrealistic stock market valuations and that their decision to start hiking interest rates risks leading to a crash.
Rosenberg echoed those concerns and criticized Fed chair Jerome Powell, whom he said "myopically focuses on 'job openings', a very soft data point".
"The growth in money supply has literally collapsed and there is nary a pulse in money velocity," Rosenberg said. "Fiscal policy, in the span of a year, has shifted from radical stimulus to restraint that would cause the remnants of the Tea Party to blush."
The S&P 500 rallied 1.9% Monday but the futures market suggested the index could erase almost all of those gains in at the opening bell later on as investors digest Snap's gloomy earnings forecast.