The famous economist warns the evaluations of extreme actions point to negative yields to come

• David Rosenberg warns against negative yields of the S&P 500 due to high valuations.

• The Cape Shiller ratio on the index is at its third highest level of all time.

• At the same time, the risks of recession increase as the labor market slows down, warned Rosenberg.

David Rosenberg is not always fair. The founder of Rosenberg Research, who became famous after calling the 2008 recession, regularly expresses a lower perspective for the economy and the markets that often do not materialize.

But in a world where bullish forecasts are consensus among the best Wall Street stock strategists, it may be prudent to take into account Rosenberg warnings. Although his predictions are not generally taking place, it is undeniable that the economist shows his work sufficiently, providing relevant data that should give investors a break.

In a recent note to customers, Rosenberg has provided figures for the front yields of the S&P 500 could be directed, given the current assessments.

The price / profit ratio cyclically adjusted from the index oscillates approximately 37.5. The measurement smooths the commercial cycles by comparing current current courses to a rolling medium of 10 -year profits.

It is the third most expensive level of all time, behind Peaks in 2021 and 2022.

Evaluations are generally reliable predictors of long -term stock market market performance. Bank of America’s data show that starting assessments can explain around 80% of market performance over the next 10 years. Last year, Morgan Stanley and Goldman Sachs strategists said that high assessments would lead to relatively low yields for the market during the next decade.

In the short term, evaluations are lower performance predictors. Rosenberg’s data show, however, that when the market becomes historically expensive – however, granted, this has only occurred twice before – one year of term yields have been negative.

The column on the right in the table below shows the forward yields over the periods of 1, 3, 5 and 10 years when the Cape Shiller ratio exceeds 35.

“This is the only cut -off point where each time is negative,” said Rosenberg in an interview with Business Insider on Thursday.

The assessments in themselves are not the reason why Rosenberg is skeptical about the rally. These are increased expectations combined with a weakening of an economic backdrop while the labor market continues to show signs of slowdown. Employment growth has been less than 100,000 per month in the last four months, according to data from the Bureau of Labor Statistics. And the economy added 911,000 less jobs than what was thought in the year, said BLS this week.