Unanimous optimism among economists echoes 2007, raises warning for investors
No economists see a 2026 recession, strategists are uniformly bullish and institutions hold record-low cash. David Rosenberg warns that such unanimity has preceded major market setbacks.
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By Torontoer Staff
Major consensus surveys now show zero economists forecasting a recession in 2026. That degree of unanimity is historically rare and mirrors the collective confidence seen in late 2007 and early 2000, episodes that preceded severe market dislocations.
Equity strategists, sell-side analysts and institutional investors have largely joined the same narrative: robust growth, double-digit earnings gains and further upside for equities. At the same time, institutional cash holdings are near record lows, downside protection is minimal and multiple valuation measures sit at extreme readings. Those facts, taken together, create a risk profile investors should not ignore.
Consensus unanimity is a historical warning sign
Economics is a discipline built on competing views. Today it resembles a chorus. Surveys that aggregate forecasts from major firms show no recession calls for 2026. The last time forecasts clustered so tightly was just before the global financial crisis. Before that, consensus was similarly misplaced in 2000. When certainty replaces probability in economic forecasting, investors should treat that as an early warning signal.
When certainty replaces probability in economic forecasting, that's your first warning sign.
David Rosenberg
Positioning is heavily risk-on
Sell-side strategists have issued bullish year-end targets for the S&P 500 across the board, with average targets implying double-digit upside from current levels. The usual dispersion in forecasts has compressed to its narrowest range in years. Fewer than five per cent of analyst ratings on S&P 500 names carry a sell recommendation, a proportion that signals a dearth of contrarian views.
Institutional positioning amplifies the message. The latest Bank of America survey shows portfolio managers with record-low cash allocations. Domestic equity mutual fund cash levels are barely above one per cent. Net long exposure in equity futures sits near multi-year highs, the put-call ratio is near two-decade lows and volatility is being sold rather than bought. In short, downside insurance is out of favour.
Valuations leave little margin of safety
Valuation metrics paint a consistent picture of elevated prices. Price-to-earnings, price-to-sales, price-to-book, the market-cap-to-GDP ratio and the Shiller cyclically adjusted price-to-earnings multiple are all in the top decile of historical readings. The Shiller CAPE is roughly 40 times, the second-highest reading on record. High starting valuations compress long-term return expectations and increase sensitivity to downside shocks.
That combination of elevated valuations and concentrated long positioning means the market is effectively pricing in near-perfect outcomes. When upside depends on perfection, the activity looks less like investing and more like speculation.
When your upside scenario requires perfection, you're no longer investing; you're speculating.
David Rosenberg
How past episodes began, and what could trigger a repricing
History shows that the immediate trigger for a downturn often differs from the underlying vulnerability. In 2000 the collapse followed excessive valuations attached to internet firms rather than the internet itself. In 2007 housing problems had begun before most investors acknowledged the severity. The proximate cause matters less than the combination of extreme positioning and elevated valuation multiples, which make markets fragile.
Practical steps for investors
- Increase liquidity and rebuild cash cushions to provide optionality and reduce forced selling risk.
- Reduce concentration and leverage, particularly in strategies that rely on continued narrow risk premia.
- Consider targeted downside protection, such as options or hedged strategies, while being mindful of costs.
- Rebalance regularly to harvest gains and maintain strategic asset allocations rather than chase performance.
- Stress-test portfolios against adverse growth and earnings scenarios to understand potential drawdowns.
Prudence on allocations and independent analysis matter when the crowd converges. The cost of holding cash or hedges is relatively low today compared with the potential cost of being fully exposed if sentiment and fundamentals diverge.
This is not a prediction of imminent collapse. Markets can remain irrational longer than many anticipate, and there are also scenarios that justify continued gains. The point is that the balance of probabilities has shifted: downside risk is elevated, and risk premiums do not adequately compensate investors for that increased vulnerability.
Investors should weigh current unanimity against historical precedent and preserve optionality. David Rosenberg is founder and president of Rosenberg Research & Associates Inc.
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