A Wall Street titan who called the 2008 recession shares 7 top trades to make before the US economy enters into another downturn with stocks ‘priced for perfection’

• David Rosenberg says the US economy is headed for a recession.
• He said stocks were priced for a perfect soft-landing scenario even if a recession was avoided.
• He said he liked Treasurys, Japanese stocks, utilities, REITs, banks, and telecommunications stocks.

According to David Rosenberg, a renowned economist who predicted the 2008 recession, the US economy is on the verge of a recession.

The classic indicators say so, even if bulls dismiss them as they have in the past. Consider the Treasury yield curve and The Conference Board’s Leading Economic Index, according to Rosenberg.

Naturally, Rosenberg expressed his concern about the broader US stock market. Even if a recession did not occur, he believes there is little upside left in the current rally.

“When you start seeing sentiment indices showing that there are three times more bulls than bears, and you look at a forward P/E ratio pressing against 20, and a CAPE valuation which recently went above 30, you know that the stock market is priced for perfection,” Rosenberg, the founder of Rosenberg Research, told Insider last week.

“Even if we could argue about a recession or a soft landing,” he continued, “you have Nirvana priced into the stock market as an asset class right now.”

But don’t worry: he said there were still places for investors to find returns, such as bonds, international markets, and specific pockets of the US stock market.

7 places for returns as a recession looms

The first area in which Rosenberg expressed optimism was the Treasury market.

He advised transferring funds from stocks to a “barbell” of Treasury bills and bonds. Treasury bills have one-year or less maturities, whereas Treasury bonds have maturities of 20 years or more. A barbell strategy entails investing equally in two assets.

He was bullish on short-term Treasurys because they allowed him to remain relatively liquid while earning a yield of more than 5%. Concerning long-term Treasurys, he stated that a downturn would cause rates to fall as investors sought safety, and that investors could profit from selling them. Furthermore, the Fed has discussed cutting rates next year, implying that bond prices would rise.

Treasury bonds can be purchased through Treasury Direct or through ETFs such as the iShares U.S. Treasury Bond ETF (GOVT), the iShares 0-3 Month Treasury Bond ETF (SGOV), and the iShares 20+ Year Treasury Bond ETF (TLT).

Rosenberg also expressed optimism about the Japanese equity market. After years of underperformance, he declared that he was long on Japan, citing attractive valuations, dividend growth, and strong payouts as evidence that the country was developing a “equity culture” in which corporations returned money to shareholders.

“My favorite equity market in the world has been and continues to be Japan.” “And I’m pretty sure I’ve been there longer than Warren Buffett,” he said. “And that is a true story.” That is not a prediction, guess, or speculation. This is actually happening, and Japan today resembles the United States in the early 1980s.”

One way to invest in Japanese stocks is through the iShares MSCI Japan ETF (EWJ).

If one wants to stay in US stocks despite recessionary pressures, he said he would invest in sectors that would benefit from falling interest rates, such as banks, utilities, REITs, and telecommunications companies.

The SPDR S&P Regional Banking ETF (KRE), the Vanguard Utilities ETF (VPU), the iShares U.S. Real Estate ETF (IYR), and the Fidelity MSCI Communication Services Index ETF (FCOM) are some ETFs that provide exposure to these sectors.