David Rosenberg, chief economist and strategist of Gluskin Sheff & Associates, discusses the outlook for the stock market in the video below.

“My view is that we are still in a secular bear market … My big concern is that the market has gotten ahead of the economy. The S&P is pricing in $85 dollars of operating earnings which would be a doubling from where we are right now, and it usually takes four to five years to double earnings off a recession low … The market has clearly overshot the fundamentals,” said Rosenberg.

Source: CNBC, October 19, 2009.

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The stock market assessment below comes from highly regarded David Rosenberg, chief economist and strategist of Gluskin Sheff & Associates.

The S&P 500 is trading north of a 26x P/E multiple on trailing operating earnings and history shows that at these high valuation levels, the market declines in the coming year 60% of the time.

All we know is that we have a trailing P/E multiple (operating earnings) on the S&P 500 of 26.5x - a record eight multiple point expansion from the low over a six-month span. Take note that this is the highest P/E multiple since March 2002, which is right around the time that the bear market rally at that time (also premised on post-crisis V-shaped recovery hopes) began to roll over. It took a good year for the fundamental bottom in the market to be put in, and that was heresy back then

The stock market assessment below comes from highly regarded David Rosenberg, chief economist and strategist of Gluskin Sheff & Associates.

We may well be in an entirely new phase right now. For months, the equity market had this uncanny ability to rally on any good news, as the psychology took hold that less-negative data was a positive (like having your golf score go up but at a slower rate). Any adverse data that caused a retracement from March to August was treated as a buying opportunity.

But having gone from pricing in -2.5% real GDP growth at the lows to +4.0% now, it looks like Mr. Market is becoming a little more discerning in terms of interpreting the economic data. Even before yesterday’s [Tuesday] selloff, the equity market was no longer rallying on “good news”, and there were many such data points that rallied the economics community

Since joining Gluskin Sheff & Associates from Merrill Lynch a few months ago, the daily research reports from chief economist and strategist David Rosenberg have been a breath of fresh air in the world of the “dismal science”. His notes yesterday on the typical macro-economic environment prevalent once the stock market has rallied by 49%, and how the current landscape stacks up against the historical average, are proof of the useful input that has regularly been forthcoming from Rosenberg. The paragraphs below are excerpts from his report.

We can understand that there is a growing list of economists calling for the end to the recession, and that may or may not be the case actually, judging by the performance of all four ingredients that go into the NBER decision-making wheel. But let’s be charitable and assume that the herd is correct this time around - a 49% rally

I published “Bob Farrell’s rules for investing” and “More on Bob Farrell’s rule #8” a few days ago, and these posts attracted a large number of readers, obviously in search of some guidance at this juncture in the markets.

Today, I consider rule #9, “When all the experts and forecasts agree, something else is going to happen”, in the context of the current situation.

Firstly, David Rosenberg, chief economist and strategist of Gluskin Sheff & Associates, quoted a CNBC poll of Tuesday showing that 90% of Wall Street economists believed the recession had ended. “It is highly unlikely that 90% of the economics community can be right on the same thing at the same time,” he said. Also, a Bloomberg survey showed that the consensus sees real US GDP expanding at annual rate of at least 2% for the next four quarters, leading Rosenberg to

I posted “Bob Farrell’s Rules for Investing” a few days ago, and these words of wisdom turned out to be popular reading material.

Given the debate as to as to whether the US stock markets are experiencing a primary (secular) bull market or a rally within a primary bear market, i.e. a so-called cyclical bull market, Farrell’s rule #8 has caused a fair amount of food for thought:

“Bear markets have three stages - (1) sharp down, (2) reflexive rebound and (3) a drawn-out fundamental downtrend.”

In an attempt to put these stages in perspective, David Rosenberg, chief economist and strategist of Gluskin Sheff & Associates, provided a graphic illustration of Farrell’s three stages, as shown below.

Click on the image for a larger graph.

Source: Gluskin Sheff

It would seem that the US housing market - arguably the Achilles heel of the global financial morass - is finally looking up.

Following the announcement on Monday that the inventory of unsold new houses in the US had dropped from 10.2 months’ supply to a three-year low of 8.8 months’ supply, the S&P/Case-Shiller Home Price Indices yesterday showed an increase on a monthly basis in May for the first time since July 2006. Thirteen of the 20 metro areas reported positive returns, with the 20-City Composite rising by 0.5%. Although not yet in positive territory, the seasonally adjusted monthly figures nevertheless represent a significant improvement, with the 20-City down by only 0.2%.

Source: Asha Bangalore, Northern Trust - Daily Global Commentary, July 28, 2009.

The 20-City Index declined by 17.1%

What the heck is going on? The Dow has just had its best weekly performance since March 2000. CNBC is full of whopping and high-fiving. The Obama administration is breathing an audible sigh of relief. And mom and pop investors all across the US are no doubt considering putting more of their savings back into the market.

Yet here at Notes we remain cautiously bearish. Why? Because it is our humble opinion that this remains a bear market rally, impressive as it is. Gluskin Sheff’s David Rosenberg says the rally lacks three key ingredients:

History is littered with such bursts of euphoria. Probably the most infamous is the bear market rally of 1930. Stocks recovered strongly following the November 13, 1929 low. Wall Street became wildly confident that the worst of the crash was over. And for a time the bulls were dead on. From a low at 199 on November 13

The long-awaited Dow Theory bull market signal finally arrived yesterday. This came about as a result of the Dow Jones Industrial Average and the Dow Jones Transportation Average both breaking through their previous rally peaks (registered on 12 and 11 June respectively).

The charts are shown below.

Source: StockCharts.com

Source: StockCharts.com

Although the breakouts provide confirmation of the nascent uptrends, one may question the relevance of the Averages as representative benchmarks in the modern economy. Also, most indices are quite overbought after very sharp moves over the last 12 days.

In my opinion, it could be dangerous to blindly put one’s faith only in Dow Theory and investors should at all times rather base their decisions on a combination of fundamental and technical

The second anniversary of the credit crisis has arrived and, in the light of the plethora of fiscal and monetary policy initiatives, it makes for interesting reading to reflect upon how the US economic landscape has changed since the start of the crunch.

• Fed funds rate: down from 5.25% to zero

• Fiscal deficit: up from 2% to 13%

• Mortgage rates: down from 6.5% to 4.7%

• Home affordability: 70% improvement

• Fed’s balance sheet: up from $850 billion to $2 trillion

Yes, the Fed has tried just about everything, and yet real GDP growth is negative at about 5% and the unemployment rate has doubled to almost 10% over the past two years.

David Rosenberg, chief economist and strategist of Gluskin Sheff & Associates, points out that there is one policy tool that is practically unchanged since two years