By most measures, the past week has been pretty much of a washout for stocks, not only in the U.S., but around the world too. While year-to-date returns are still solidly in double-digits for the benchmark indexes, there are fears that this creeping retreat could grow into something more sinister and erase a lot more than the four percent that it already has.
"All the technical signs are that the market is probably heading into a corrective mode," says David Rosenberg, chief economist and strategist at Gluskin Sheff in the attached video. "My sense right now, when you take a look at valuations, you take a look at sentiment, you take a look at the economy, it's really tough to point your finger at a catalyst that would take the market higher."
That's not to say Rosenberg is looking for an outright crash. In fact, he's predicting several months of range bound trading for stocks, the initiation of Fed tapering, and the possibility of another debt ceiling showdown in late September.
As for his outlook for the bond market, that's a totally different story.
"The bond market right now is dramatically oversold, by any measure, and I think we are ripe for a near term rally that could probably take us back to 2.50% to 2.60%," he says, calling the move a tradeable rally.
Looking into next year, however, this noted bear is far less optimistic about rates and predicts a shift in 10-year Treasury yields from the current 2 to 3% band, to a range of 3 to 4%, on the belief that the current economic headwinds will dissipate and deliver nominal GDP growth of nearly 5%.
"To keep 10-year notes with a 'two-handle' in that environment is going to be very difficult," he says. And since 2014 is a mid-term election year, his growth target goes up since we are unlikely to see a lot of fiscal tightening or budget cuts.
Pretty rosy stuff from a man best known for his dour predictions.
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