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Investors worried about a market correction should adjust their portfolios, says David Rosenberg.
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The leading economist has warned that stocks are in a bubble and at risk of a major decline.
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He advised investors to pay attention to key sectors and add “insurance” to their portfolio.
A number of Wall Street forecasters have warned of a stock bubble as the market climbs to a series of new highs in 2024 – and investors worried about such a scenario should put their money in some assets to protect themselves from such a blowout. .
This was expressed by David Rosenberg, a prominent economist and founder of Rosenberg Research, who has been warning of a potential stock crash for months. In the past, he warned of a 39% correction in stocks, one of the extreme predictions on Wall Street, where most investors are optimistic about a soft landing amid a strong economy and easing interest rates.
“Observing the market today is like watching a clown blow up a balloon (or Chuck Prince ballroom dancing), knowing the inevitable,” Rosenberg said in a note to clients on Friday. “When this mega-bubble pops, it’s going to be spectacular.”
Investors need to be careful and avoid following a “herd mentality,” Rosenberg said, pointing to the enthusiasm for large-cap technology 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 best investment ideas to prepare for a potential market bubble burst.
Health services and basic consumer needs
Investors must direct their investments towards the future needs of society. In particular, Rosenberg recommends that investors pay attention to options in the healthcare and consumer staples sectors.
“Focus on what people will focus on what they need, not what they want,” Rosenberg wrote. “Anything to do with e-commerce, cloud services and wiring your home to become a new office has been in a secular growth phase.”
Utility
Utility stocks also look promising. Other forecasters predict huge gains for utility companies, due to increased demand for electricity and data centers stemming from the AI boom.
“Utility companies, as we have long said, are almost an easy pick, given their yield attributes and reassessed for ‘defensive growth’ due to increased earnings visibility through strong companies and a secular outlook on US electricity needs, Rosenberg said.
Space, Defense
Aerospace and defense stocks could also be a source of buying, he added, given rising geopolitical tensions around the world.
“Aerospace/defense has been a long-term challenge for us for several years, and is the best hedge against an increasingly troubled world where military budgets are increasing everywhere – and completely insensitive to who will be in power on November 5th. ”
Big tech
Even though some tech fields are showing bubble characteristics, investors can still take advantage of opportunities in some large-cap tech companies, given the prevalence of work-from-home, cloud services and remote work, Rosenberg said. However, investors should wait to get better priced tech names, he said.
“I would prefer to take this play at a better price than we have at the moment as this recent downturn has eaten into enough of our expected future returns to keep us cautious for now. But we would be buyers who is diligent in the event of a significant setback.”
Safe bet
Investors should put a “dose of insurance” in their portfolio. That means gold – “the truest store of value,” Rosenberg said, – as well as government bonds.
“The beautiful thing about gold is that it is not a liability that can be simply forgiven by a central bank or a currency that can be printed on government paper,” he said of the precious metal. “I also like the Treasury market because it provides the highest returns of any major industrialized country – and with great liquidity attributes.”
Real estate investment trusts can also be a good way to hedge against risk, Rosenberg said. This is especially true for REITs related to the industrial and healthcare sectors.
“However, we all need to be more thematic and thoughtful in our decision-making and more selective than usual because the stock market, and financial assets in general, are nothing more than a casino of momentum,” he added.
Most forecasters on Wall Street still expect strong performance from equities through the end of the year and 2025. Goldman Sachs, UBS, BMO, and Deutsche Bank have raised year-end price targets for the S&P 500 in recent weeks, with new estimates ranging from 5,750 to 6,400.
Read the original article on Business Insider
