-
Investors worried about a market correction should adjust their portfolios, says David Rosenberg.
-
The top economist has warned that stocks are in a bubble and at risk of a big drop.
-
He advised investors to pay attention to key sectors and add ‘insurance’ to their portfolios.
Some Wall Street forecasters have warned of a stock market bubble as the market climbs to a series of new highs in 2024 – and investors worried about such a scenario should put their money into a handful of assets to protect themselves from the eventual burst of the stock bubble. .
This is what David Rosenberg, a top economist and founder of Rosenberg Research, says. In the past, he has warned of a 39% stock correction, one of the more extreme predictions on Wall Street, where most investors are optimistic about a soft landing amid a robust economy and an easing of interest rates.
“Watching the market today is like watching a clown blow up a balloon (or Chuck Prince dancing the ballroom) knowing what is inevitable,” Rosenberg said in a note to clients on Friday. “If this mega bubble bursts, it will be spectacular.”
Investors should be cautious and avoid following the “herd mentality,” Rosenberg said, noting the interest in mega-cap tech stocks. Instead, he said, investors should focus on stocks with strong business models, strong growth and good prices, and add some “insurance” to their portfolios.
Below are his top investment ideas to prepare for the possible bursting of a market bubble.
Healthcare and consumer goods
Investors must tailor their investments to what people will always need in the future. Rosenberg advised investors to pay particular attention to options in the healthcare and consumer staples sectors.
“Focus on where people start to focus on what they need, not what they want,” Rosenberg wrote. “Everything related to e-commerce, cloud services and wiring your home to become your new office is in a nascent, secular growth phase.”
Utilities
Utility stocks also look promising. Other forecasters predict huge benefits for utilities, due to the growing need for energy and data centers driven by the AI boom.
‘Utilities are, as we have long said, as close to a ‘no brainer’ as there is given their return characteristics and their revaluation for ‘defensive growth’ due to the improved earnings visibility from the strong and secular outlook for America’s energy needs,” Rosenberg said.
Aerospace, defense
Aerospace and defense stocks could also be a buy, he added, given rising geopolitical tensions around the world.
“Aerospace/defense has been a bull call for us for years, and the best protection against an increasingly restless world in which military budgets are growing everywhere – and are not at all sensitive to who comes to power on November 5.”
Great technology
While some tech sectors are showing bubble characteristics, investors could still seize opportunities in some big tech names given the prevalence of remote work, cloud services and remote work, Rosenberg said. Still, investors should hold off on bringing tech names to market at better prices, he said.
“I would like to pick up these products at better prices than we have now because this latest melt-up has eaten enough into future expected returns to keep us cautious for now. But we would be an avid buyer in any significant pullback. “
Safe bets
Investors should try to put a “dose of insurance” in their portfolios. That means both gold – the “truest store of value,” says Rosenberg – and government bonds.
“The beauty of gold is that it is not a liability that a central bank can simply waive, or a currency that can simply be printed by government fiat,” he said of the precious metal. “I also favor the government bond market because it offers just about the highest returns of any major industrial country – and because of its great liquidity characteristics.”
Real estate investment trusts can also be good ways to hedge risk, Rosenberg said. This is especially true for REITs tied to the industrial and healthcare sectors.
“If anything, we all need to become increasingly more thematic and thoughtful in our decision-making and more selective than usual, because the stock market, and financial assets in general, have become nothing more than a momentum casino,” he added.
Most Wall Street forecasters still expect strong stock performance through year-end and 2025. Goldman Sachs, UBS, BMO and Deutsche Bank have raised their year-end price targets for the S&P 500 in recent weeks, with new predictions ranging from 5,750 to 6,400.
Read the original article on Business Insider
