• The Santa Claus rally in stocks could end abruptly with a “nasty January,” David Rosenberg said.
• The economy may slump in 2024 as past fiscal excess and interest-rate hikes are headwinds, he said.
• The Rosenberg Research president issued his latest bleak outlook in a research note this week.

Stocks appear overstretched after their Santa Claus rally and are likely to retreat in January — and the American economy is much weaker than it seems and poised to slump next year, David Rosenberg has warned.

The Rosenberg Research president anticipated the Great Recession, but financial markets and the economy have defied his dire predictions in recent years. The former chief North American economist at Merrill Lynch delivered his latest bleak outlook in a research note on Thursday.

Here are the 5 best quotes, lightly edited for length and clarity:

1. “The equity market looks increasingly overbought, even to the most casual observer. The major averages, especially the Nasdaq, have become super-extended vis-à-vis their 50-day trendlines. Sentiment indicators are into extremes in terms of bullish complacency. Valuations remain stretched and are not compelling when benchmarked against the risk-free interest rate. And earnings estimates are no longer going up — in fact, they have started to reverse ever so slightly.” 

2. “We very likely will be in for a Santa hangover early in the New Year. To be sure, investors waiting to sell stocks until January for tax reasons are delaying that potential pullback, but ultimately, this could end up making for a nasty January.”

3. “The economy is much more fragile than meets the eye.” (Rosenberg pointed to a recent survey indicating business conditions are deteriorating, and underscored the last 10 economic indicators published in the past month including nonfarm payrolls, housing starts, and consumer spending have all shown downward revisions.) 

4. “The fastest rate hiking cycle since the 1980s is beginning to bite — just as pundits and markets go all-in on the ‘soft landing’ narrative. Households are feeling the effects of the most aggressive tightening cycle since the 1980s, as financial distress in credit cards and auto loans reaches levels we last saw in the 2008 Global Financial Crisis. The delinquent payments on these loans are expected to rise even further as layoffs increase and banks tighten their lending conditions.”

5. “We have been in a ‘soft landing’ all year long, as was the case in 1979, 1989, 2000 and 2007. The ‘soft landing’ is the transition phase — the bridge — from the expansion phase of the business cycle to the contraction phase, which I believe will be next year’s story. The Fed has locked itself into a downturn.” (Rosenberg predicted the aggressive fiscal stimulus in 2023 would depress year-on-year growth, and underlined the delayed impacts of the most extreme rate-hiking cycle in four decades.)