The stock market is looking a lot like it did before the dot-com and '08 crashes, top economist says

• The stock market looks similar to the periods that preceded the dot-com and 2008 market events.
• David Rosenberg pointed to the exuberance for AI, which has sparked a “raging bull market.”

The stock market is flashing the same warning signs of “speculative mania” that preceded the crashes of 2008 and 2000, according to economist David Rosenberg.

The Rosenberg Research president — who called the 2008 recession and who’s been a vocal bear on Wall Street amid the latest market rally — pointed to the “raging bull market” that’s taken off in stocks, with the S&P 500 surpassing the 5,000 mark for the first time ever last week.

The benchmark index has soared around 22% from its low in October last year, clearing the official threshold for a bull market. The index has also gained for the last five weeks and has been up for 14 of the last 15 weeks — a winning streak that hasn’t been seen since the early 1970s.

But the stellar gains are a double-edged sword for investors, as the market looks dangerously similar to the environment prior to the dot-com and 2008 crashes, Rosenberg wrote in a note on Monday.

“With each passing day, this has the feel of being a cross between 1999 and 2007. It is a gigantic speculative price bubble across most risk assets, and while AI is real, so was the Internet, and so were the high-flying stocks that populated the Nifty Fifty era,” he said, referring to the group of 50 large-cap stocks that dominated the stock market in the 60s and 70s, before falling by around 60%

Other Wall Street strategists have warned of the parallels between today’s market and similar stock booms in the past. The hype for artificial intelligence pushed the Magnificent Seven stocks to dominate most of the S&P 500’s gains last year, and a major price correction is on the way as valuations soar to unsustainable levels, Richard Bernstein Advisors said in an October 2023 note.

“This is the problem when a group of mega cap ‘concept’ stocks trade at double the multiple of the rest of the market. The lesson is that (i) the higher they are, the harder they fall, and (ii) there are dangers when too much growth gets priced in,” Rosenberg said. “Being real in an economic sense does not mean we have not entered a realm of excessive exuberance when it comes to the financial markets,” he added, referring to the hype surrounding AI.

The outlook for stocks is also shadowed by an uncertain economic picture. Geopolitical risks, recession risk, and the risk that the Fed will disappoint investors hoping for rate cuts aren’t being priced into markets at the moment, Rosenberg added.

“I don’t find speculative manias a turn-on and in my personal finances, I avoid them like the plague. Not everyone likes to hear that, especially since I missed so much of this rally but that’s how I roll,” he said.

Rosenberg has warned investors to tread carefully before, given the slew of risks he sees ahead for markets. Previously, he said that the S&P 500 looked “eerily similar” to 2022, the year the index plunged 20%. That’s partly because a recession that “few see and few are positioned for” is coming for the economy, he wrote in a post on LinkedIn last month.