The specter of the 2008 crisis looms on the horizon!

Renowned economist David Rosenberg predicts that the S&P 500 will collapse another 17% to the 3,300-point level as stocks enter a prolonged bear market, which he compares to the run-up to the 2008 financial crisis.

“I feel like I’m taking back the summer of 2008,” he wrote in an editorial for MarketWatch. “The stock market is following a familiar bear market pattern.”

By late May 2008, before the scale of the subprime mortgage market’s problems became clear, the S&P 500 had narrowly avoided a bear market, dropping 17% from its October 2007 high before recovering. But it wasn’t long before the market nearly pulled back, dropping by 40% by the end of that year.

The founder of Rosenberg Research, a market veteran of more than 30 years, has repeatedly warned investors to prepare for a bear market. He cited the current low dividend yield of the S&P 500 as one of the reasons he expected a 17% drop from its current level of just under 4,000 points.

“The dividend yield on the S&P 500 is slim at 1.5%,” Rosenberg said, adding that a downtrend usually doesn’t end until the dividend yield converges with the bond yield. Mathematically, this means that the lowest level of the S&P 500 index is close to the level of 3,300 points, according to what has seen.

The yield on 10-year Treasuries is currently around 2.8%, meaning that they compete more effectively for long-term investors’ cash than the S&P 500 index. The last time the gap between the two was this wide was in May 2018, according to Bloomberg data.

The dividend yield is calculated by dividing the dividends by the market price of the stock, and in the case of the index, the general average of the return is calculated compared to the index, and whenever the percentage is less than the bond yield, this means that the stock will experience selling pressure to rebalance the yield with the bonds.

Stocks have risen over the past two years, but fallen sharply in 2022. Rosenberg said the stock’s collapse into a bear market showed that “the last two years represent a fake bull market built on sand, not concrete.”

Many economists argued that the Fed’s pandemic stimulus packages contributed to unrealistic stock market assessments and that their decision to start raising interest rates could lead to a crash.

Rosenberg echoed those concerns and criticized Federal Reserve Chair Jerome Powell, who said he is “focusing short on ‘jobs'”, a very weak data point, as he put it.