‘Shocking’ inflation will end, hurt reopening stocks: David Rosenberg

on Jun14
by | Comments Off on ‘Shocking’ inflation will end, hurt reopening stocks: David Rosenberg |

Economist David Rosenberg believes the bond market is getting inflation right and yields shouldn’t trade at higher levels.

His reasoning: Inflation is a temporary phenomenon caused by enormous pent-up demand and supply chain issues connected to the coronavirus pandemic.

“The numbers have been shocking to the upside, no doubt about it. But it’s pretty easily explainable,” the Rosenberg Research president told CNBC’s “Trading Nation” on Friday. “I don’t understand why people want to superimpose these last couple of months into the future.”

So far, the bond market is shrugging off inflation. The benchmark 10-year Treasury Note yield hit its lowest level since March 3 on Friday and closed at 1.45%. The yield is off 7% over the last week and down almost 11% over the past month.

Sliding yields have been on Rosenberg’s radar for months.

In late February on “Trading Nation,” Rosenberg called the bond market “radically oversold” and predicted the 10-year yield would retreat to 1%. At the time, the yield was around 1.5%.

“There is just so much noise and distortion in the data,” said Rosenberg, who served as Merrill Lynch’s top North American economist from 2002 to 2009. “The most dangerous thing anybody can do is extrapolate what’s happening now.”

I refuse to hyperventilate over inflation.

David Rosenberg

Rosenberg Research

In a note to investors on Friday, he wrote “I refuse to hyperventilate over inflation.” He believes the other side of surging growth is a plateau.

“That’s the story for the second half of the year… The bond market is sniffing that out right now,” Rosenberg said. “My forecast is slower growth, inflation peaking out and rolling over and a bull flattening in the yield curve.”

It’s an outlook that would spell trouble for the reopening trade. Rosenberg predicts consumer cyclicals, a major part of it, will fall out of favor later this year.

“Growth should reclaim leadership over value in the stock market,” he said. “You want to be more in defensive growth and in areas of the market that are going to benefit from a lower bond yield.”

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