Rosenberg Says U.S. Stock Market May Test March 9 Low (Update2)
By Eric Martin and Erik Schatzker
May 21 (Bloomberg) -- The Standard & Poor’s 500 Index may fall beneath the 12-year low reached on March 9 because consumer spending hasn’t recovered from the longest recession since the 1930s, economist David Rosenberg said.
“We have to get confirmation the March lows are going to hold,” Rosenberg, the chief economist and strategist at Gluskin Sheff & Associates Inc. in Toronto, said in an interview with Bloomberg Television. “The conventional view was the November lows were going to hold. As we found out in the opening weeks of March, no, those lows didn’t hold.”
Rosenberg said he will “keep an open mind as to whether the lows from March will hold or not as we go into the second half of this year. I’m not sure where the buying power is going to come from.” Rosenberg is the former chief North American economist at Merrill Lynch & Co., the brokerage bought by Bank of America Corp. in January. He left the firm this month.
The S&P 500 rallied as much as 24 percent from an 11-year low of 752.44 on Nov. 20 to Jan. 6 on speculation the economy will recover amid government efforts to rescue banks and automakers. The measure erased those gains and fell another 10 percent to a 12-year low of 676.53 on March 9 as losses at lenders mounted and unemployment continued to rise.
‘Gargantuan Short Covering Rally’
Rosenberg said the nine-week gain that began March 10, the steepest over similar spans since the 1930s, was a “gargantuan short-covering rally.” A so-called short covering rally happens when investors who have borrowed shares, hoping to buy them back at lower prices and profit from their decline, are forced to purchase the shares to close their bearish bets.
Rosenberg said he doesn’t expect the economy to recover in the second half.
“I’m seeing no revival of consumer spending in the second quarter,” Rosenberg said.
Retail sales in the U.S. unexpectedly dropped in April for a second month, indicating that rising unemployment is prompting consumers to conserve cash. The 0.4 percent decrease followed a revised 1.3 percent drop in March that was larger than previously estimated.
The benchmark index for U.S. stocks plunged as much as 57 percent from an October 2007 record as writedowns and credit losses stemming from the collapse of the subprime mortgage market climbed to $1.47 trillion. The measure rallied 34 percent from March 9 through yesterday as the largest banks said they were profitable, the government pledged $12.8 trillion to drag the economy out of recession and policy makers around the world cut interest rates to near zero.
