David Rosenberg: The Economy Is More Fragile Than You Think

Summary

David Rosenberg argues the U.S. economy is weaker than headline data suggests, with growth below potential and disinflation building. He expects the Fed's next move to be a rate cut and likes the front-end Treasury market while warning that long-end yields are driven by term premium and uncertainty. He also explains that strong S&P 500 earnings are narrowly driven by AI and energy, masking a bifurcated economy and fragile consumer income backdrop.

• Rosenberg sees the U.S. economy growing below potential and building slack.
• He expects disinflation to continue and the Fed's next move to be a cut, not a hike.
• He favors front-end Treasuries, especially the two- and three-year notes.
• He argues long-end Treasury yields are sticky due to term premium and policy uncertainty, not inflation expectations.
• He notes S&P 500 earnings strength is concentrated in AI and energy, with ex-AI/ex-energy profits under 5%.
• He warns consumer spending has been supported by a falling savings rate and stock market wealth effect.
• He sees the economy and market as extremely bifurcated, with AI and war-driven energy outperforming the old economy.