David Rosenberg, chief equity strategist at Rosenberg Research, has been saying for some time the market is running on a Federal Reserve-induced high.
In a note to clients on Tuesday, he said relative value in the current environment doesn’t make any sense, with the S&P 500 SPX, +0.01% up 37% from its March lows. “Relative value becomes meaningless when the Fed is buying everything but equities — it’s all cheating off the proverbial F student,” he said.
The Fed has lowered interest rates to nearly zero and snapped up not just Treasurys but also corporate bond exchange-traded funds.
The yield on the iShares iBoxx $ High Yield Corporate Bond ETF HYG, +0.32%, better known by its ticker HYG, was 5.2% on Monday, and the yield on the iShares iBoxx $ Investment Grade Corporate Bond ETF LQD, +0.14% was 3.1%. High yield has averaged a 9% yield over the past three decades and 13% in recessions, and investment-grade debt has averaged 5% in the past and about 6.5% in recessions, Rosenberg said.
He said investment grade should be yielding 5% to 6%, and high-yield should be around 8%.
Rosenberg said he does have some investment ideas including energy infrastructure, REITs and senior debt in quality banks.
“But the Fed is making it hard to own risk assets right now with any degree of moral, intellectual or economic based grounding,” he said.