Global stock market welcomed the decision, but David Rosenberg, the former chief North American economist at Merrill Lynch and president of Rosenberg Research, remains cautious. He has consistently criticized Fed Chair Jerome Powell’s approach, and while he believes this rate cut was the right move, it was long overdue.
David Rosenberg: Top Investment Picks are Long-Term Treasury Bonds, Gold, Utilities, Real Estate, Financials, and Dividend-Growth Stocks
“The Fed’s recent move of a 50-basis-point rate cut is simply a recognition that they stayed too tight for too long.”
On Wednesday, the U.S. Federal Reserve made headlines by slashing interest rates by half a percentage point. Whether this marks a successful policy shift remains to be seen.
“The Fed’s action is merely an acknowledgment that monetary policy has been too tight for too long,” Rosenberg said.
In an interview with MarketWatch, Rosenberg explained that while the Fed’s latest move addresses economic pressures, it’s unlikely to prevent a recession. He argues that the central bank, which lagged in addressing inflation, is similarly behind in tackling the looming economic slowdown. As a result, Rosenberg is advising investors to pivot towards rate-sensitive assets that can benefit from an extended period of monetary easing. He anticipates the federal funds rate could drop to pre-pandemic levels of 1.75%.
“The recession has been delayed, not derailed,” Rosenberg emphasized.
Investment Outlook
For investors, Rosenberg recommends focusing on sectors that traditionally perform well in periods of slower growth, lower inflation, and lower interest rates. His top picks include long-term Treasury bonds, gold, utilities, real estate, financials, and dividend-paying growth stocks.
- Treasury Bonds: Rosenberg forecasts the 10-year U.S. Treasury yield to drop to 2.5% or lower, offering equity-like returns.
- Gold: He remains bullish on gold as part of a bond-bullion strategy, expecting both lower interest rates and a weakening U.S. dollar to drive gold prices higher.
- Stock Market: While tech stocks typically benefit from lower interest rates, Rosenberg believes current valuations are too high. Instead, he advocates for sectors like utilities and real estate, which are better suited for a low-growth, low-inflation environment.
Despite the Fed’s easing, Rosenberg remains skeptical of a “soft landing” for the economy, warning that the central bank’s past mistakes make a recession inevitable.
