Top economist who called 2008 recession warns ‘we are in a gigantic price bubble’

David Rosenberg, the economist who predicted the 2008 financial crisis, is warning that U.S. equities are deep in bubble territory as economic fundamentals weaken.

His warning comes despite the benchmark index notching new highs in recent sessions. Notably, at the close of Friday’s session, the S&P 500 stood at 6,584, representing year-to-date gains of over 12%.

According to Rosenberg, the S&P 500 is at risk of delivering negative returns in the year ahead, with valuations reaching extreme levels.

The Rosenberg Research founder argued that the market’s lofty valuation shows investor sentiment has disconnected from the economic backdrop. To this end, such exuberance reflects a bubble pattern where prices climb even as fundamentals deteriorate.

“This is what a euphoric state looks like we’re seeing it in real time. <…> We are in a gigantic price bubble that is ongoing. And you know it’s a price bubble when prices move up in the face of negative fundamentals,” he said in an interview with Business Insider. 

Warning of negative S&P 500 returns 

Rosenberg backed his view with data showing the index’s Shiller price-to-earnings ratio has risen to about 37.5, the third-highest in history behind peaks in 2021 and 2022. Historically, when valuations have reached similar levels, forward returns have turned negative.

At the same time, labor market signals are flashing red, which contributed to Rosenberg’s cautionary take. Initial jobless claims rose to 263,000 last week, surpassing economists’ expectations and pointing to weaker payroll growth. 

Over the past four months, job creation has averaged under 100,000 per month, while Bureau of Labor Statistics revisions revealed nearly one million fewer jobs were added in the year through March than previously estimated.

Looking ahead, with hiring slowing and valuations stretched, Rosenberg believes the market is either already in a downturn or on the verge of one.

Beyond labor data, Rosenberg has also raised concerns about the housing market, which he sees as becoming a critical drag on the economy. 

With housing valued at around $48 trillion, more than double its pre-crisis level, he warned that falling prices could spark a negative wealth effect, eroding consumer confidence and spending.

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