Veteran economist David Rosenberg is issuing a stark warning to Canadian investors, pointing to a dangerous level of unanimity in bullish market forecasts that he last witnessed in late 2007—just before the global financial crisis.
The Echo of 2007: A Consensus of Complacency
According to Rosenberg, the current economic and market optimism has reached a "deafening crescendo." The narrative is one of a robust economy, double-digit earnings growth, and clear skies ahead for equities, creating an illusion that risk has been permanently eliminated. However, Rosenberg highlights a critical and rare data point: not a single economist in major consensus surveys is predicting a recession for 2026. This level of agreement is historically extraordinary.
"The last time we saw this degree of unanimity was in late 2007, and we all remember how that turned out," Rosenberg notes, adding that a similar pattern was evident in early 2000. His core argument is that economics is meant to be a profession of debate, not a choir singing in harmony. "When certainty replaces probability in economic forecasting, that's your first warning sign," he states, emphasizing that recessions typically arrive when they are least expected by the consensus.
Strategists and Analysts Join the Chorus
The uniformity extends beyond economists to equity strategists and analysts. Rosenberg points out that every major sell-side strategist has a bullish year-end target for the S&P 500, with the average implying double-digit gains. The range of estimates is at its narrowest in memory, a sign he attributes to career risk overshadowing intellectual honesty.
Furthermore, the analyst community has largely abandoned "sell" ratings. Fewer than 5% of all ratings on S&P 500 stocks are a sell recommendation. "That’s not analysis; that’s marketing," Rosenberg critiques. He questions the value for investors when the professionals paid to identify overvalued securities can't find a single major stock worth selling.
Institutional Investors Are Out of Dry Powder
The warning signs are also evident in how money managers are positioned. Data from a Bank of America survey shows portfolio managers have slashed cash allocations to record lows. Rosenberg highlights that domestic equity mutual funds are holding barely more than 1% in cash, an amount roughly matching the S&P 500's dividend yield.
This means institutional investors are fully invested with little reserve capital. This positioning is particularly alarming to Rosenberg given that the market is trading at a cyclically adjusted price-to-earnings (CAPE) multiple of 40x, which he notes is the second-highest valuation of all time. The risk of being caught in a significant market drawdown and a subsequent cycle of investor redemptions, he argues, has never been higher.
Rosenberg's message, penned in January 2016, is a call for caution. He concludes that the collective exuberance, even amid an artificial intelligence boom, mirrors historical precedents that preceded major market downturns, urging serious investors to consider the contrarian perspective.
