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Economist David Rosenberg is rethinking his bearish stance amid this year’s massive stock market rally.
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Rosenberg said extreme stock market valuations may be justified given AI’s economic potential.
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Investors are extending their valuation outlook beyond a year, and Rosenberg is following suit.
Economist and market bear David Rosenberg returns after this year’s thrilling stock market rally.
While he says his updated view doesn’t amount to “throwing in the towel,” he admits that the tech-driven AI boom is forcing him to reframe his thinking about the broader stock market.
“It’s high time for me to stop pontificating about all the reasons why the US stock market is crazy overvalued and all the reasons to be bearish based on all the variables I’ve relied on in the past,” Rosenberg wrote to his clients.
Rosenberg has long relied on current stock market valuations relative to the past to highlight how historically extreme the stock market is currently valued.
And he’s not wrong.
Longtime stock bull Ed Yardeni highlighted five charts this week that showed valuations have been stretched to historic extremes.
However, according to Rosenberg, the extreme valuations may be justified if AI can unleash a wave of productivity on the economy.
This idea was echoed by BlackRock in its 2025 outlook, which argued that comparing current market valuations to those of the past is “apples to oranges” given the profound shift in the tech-led US economy.
Perhaps more importantly, the promise of AI will ultimately lead investors to expand their time horizons beyond the traditional one-year outlook.
“Investors are clearly looking beyond a year and looking at a whole range of indicators and developments, so the traditional way we look at valuations may not be appropriate today,” Rosenberg said.
Rosenberg added that even if the stock market is in a bubble, it may not be apparent for years to come, similar to the Internet bubble that began to form in the mid-1990s and eventually burst in 2000.
With profits soaring for tech companies like Nvidia, the exuberance gripping investors doesn’t seem extreme or unsustainable.
“A bear market will only occur if these expectations turn out to be excessive. That day could very well come, but Mr. Market has been saying for some time: ‘not quite yet” Rosenberg said.
A shift in the Federal Reserve’s interest rate policy could also send markets lower, but that does not appear to be in sight in the near term.
