Knock-On Effects Could Make This Worse Than The Dot-Com Bust | David Rosenberg

The economy is currently experiencing a growth turndown, with real GDP trending toward 1.5% rather than the resilient growth often cited. This fragility is masked by an AI-driven construction boom and an equity wealth effect that sustains high-end consumer spending. The stock market remains in the late stages of a psychological bubble, where extreme concentration and negative equity risk premiums signal significant downside risk. Because most sectors are now correlated with the AI trade, traditional diversification has failed, leaving investors vulnerable to a potential correction. A prudent strategy involves shifting away from over-concentrated US indices toward global markets, including Europe and Japan, while maintaining exposure to hard assets like commodities and healthcare. With the Federal Reserve’s shifting rhetoric and rising real interest rates, investors should prioritize risk management and rebalancing over passive index exposure to navigate the coming volatility.