Economics

by Tom Bradley

David Rosenberg is a thoughtful and experienced economist. He’s in the media often and has a huge following. I know this because my brother-in-law sends me a note every few weeks asking if I agree with his latest article.

But David falls into the same trap many other economists and commentators do — he assumes there’s a tight relationship between what’s happening in the economy and where the stock market is going.

In a recent Globe & Mail article entitled Why the long-term outlook for Canadian stocks is rosy (in the short term, not so much), David finishes with, “… although we believe that equities are likely to see continued downside (on tighter financial conditions/growing recession risks), we think the Canadian equity market has decent value for long-term investors.”

David has wonderful insights, as do a few other economists, but be careful to not get too caught up in his short-term market forecasts. His call that we’re “likely to see continued downside” may prove to be right, but if it is, it will be a total fluke. He doesn’t know what the market is going to do in the coming months, and neither does anyone else. There are too many factors at play. The relationship between the economy and stock market is sloppy at best.

Not to put too fine a point on it, but as I said in a post late last year: “I don’t read market forecasts. These predictions aren’t worth the paper they’re written on and shouldn’t influence investment decisions. If you must, read them to learn about the underlying reasoning and ignore the conclusion.”

We're not a bank.

Which means we don't have to communicate like one (phew!). Sign up for our Newsletter and Blog and join the thousands of other Canadians who appreciate the straight goods on investing.