Stock Market Veteran: Rate Cuts May Not Prevent Recession

On Wednesday, the U.S. Federal Reserve made waves by cutting interest rates by half a percentage point. While market responded positively, whether this marks a successful move remains uncertain.

David Rosenberg’s Top Picks: Long-Term Treasury Bonds, Gold, Utilities, Real Estate, Financials, and Dividend Growth Stocks

“The Fed’s 50-basis-point rate cut is merely an admission that it had kept policy too tight for too long.”

David Rosenberg, former chief North American economist at Merrill Lynch and now president of Rosenberg Research, remains cautious. A vocal critic of Fed Chair Jerome Powell, Rosenberg believes that while the rate cut was the right move, it was long overdue.

“The Fed’s decision acknowledges that they stayed too tight for too long,” said Rosenberg.

In an interview with MarketWatch, Rosenberg explained that while the move addresses some economic pressures, it’s unlikely to prevent a recession. He argues that the Fed, having been slow to combat inflation, will also struggle to avert an economic slowdown. As a result, Rosenberg advises investors to focus on rate-sensitive assets that can benefit from a prolonged easing cycle, predicting that the federal funds rate will fall to its pre-pandemic level of 1.75%.

“The recession has been delayed, but it’s not off the table,” Rosenberg said.

Investment Strategy
Rosenberg recommends investors shift toward sectors that traditionally perform well in times of slower growth, lower inflation, and declining interest rates. His top choices include long-term Treasury bonds, gold, utilities, real estate, financials, and dividend-paying growth stocks.

• Treasury Bonds: Rosenberg predicts the 10-year U.S. Treasury yield will fall to 2.5% or lower, offering returns comparable to equities.
• Gold: He is bullish on gold as part of a balanced portfolio strategy, expecting lower interest rates and a weaker U.S. dollar to drive gold prices higher.
• Stocks: Rather than tech stocks, which are still overvalued in his view, Rosenberg prefers sectors like utilities, real estate, and financials, which tend to do well in low-growth, low-inflation environments.

Rosenberg is skeptical that the Fed’s easing measures will create a “soft landing” for the economy, warning that past missteps make a recession likely. For investors, he suggests focusing on assets that can weather the storm.