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The stock market’s post-election rally appears disconnected from fundamentals, David Rosenberg said.
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He pointed to signs of weakness among companies, with the rise of “zombie companies” in recent years.
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Stock investors may be too optimistic about Trump’s pro-business policies, he said.
The stock market rally fueled by Donald Trump’s election victory appears increasingly disconnected from reality, according to economist David Rosenberg.
The founder of Rosenberg Research expressed concern about the post-election rally, and major stock indexes hit new highs in the week after Trump secured his second term as president.
The skyrocketing rise in stock prices is ignoring key signs of weakness among U.S. companies, Rosenberg said in a note to clients on Tuesday. In particular, he pointed out “zombie companies.” The term refers to companies saddled with high debt loads that do not generate enough revenue to cover their interest expenses, and their number has increased over the past decade.
An Associated Press analysis found that about 7,000 publicly traded companies worldwide would qualify as “zombies” in 2023, of which about 2,000 would be in the United States. This was about 30% more than the number of zombie companies recorded in the United States a decade earlier.
Rosenberg said the trend is a worrying sign for credit markets, and many small caps are already among the ranks of zombie companies.
“There has been a worrying resurgence of the phenomenon of ‘zombie companies’.
started. Of the 3,000 companies in the Russell 3000, approximately 600 are now in the ranks of the ‘living dead’; that’s about 50% more than before the GFC unfolded,” Rosenberg said.
“This clearly demonstrates that the current euphoria is disconnected from reality and is based on hopes for lower regulations and taxes by the new administration. But with a razor-thin Republican majority in the House and fiscal conservatives on both sides of the aisle, this seems unlikely from where we are.”
Other market forecasters have warned that the rally fueled by Trump’s election victory could eventually fade, especially given already lofty stock valuations. Bill Smead, chief investment officer at Smead Capital Management, told BI that the “Trump coup” was pushing the stock bubble over the edge, potentially setting investors up for years of anemic returns.
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