David Rosenberg: When no one is calling for a recession or market crash, here's what usually happens
I know I keep harping on this one theme: that the consensus is rarely right at inflection points. And right now, we don’t just have a consensus; we have unanimity. That should give every serious investor a cause for pause.
The bullish drumbeat has reached a deafening crescendo. The economy? Robust. Earnings? Set to soar double digits. Equities? Nothing but blue skies ahead. If you didn’t know any better, you’d think we’d entered some sort of financial nirvana where risk has been permanently vanquished and the business cycle has been repealed.
Let’s start with the most remarkable data point of all: not a single economist in the major consensus surveys is calling for a recession in 2026 . Zero. None. This isn’t just unusual; it’s historically extraordinary. The last time we saw this degree of unanimity was in late 2007, and we all remember how that turned out. Before that? Early 2000. Sensing a pattern here?
Economics is supposed to be a profession of rigorous debate and competing views. Instead, what we have today resembles a choir, and everyone’s singing from the same hymnal. The soft landing narrative has gone from “possible” to “probable” to “certain” in the span of 12 months. When certainty replaces probability in economic forecasting, that’s your first warning sign.
Recessions don’t announce themselves with a megaphone. They arrive precisely when they’re least expected, when the consensus has declared them impossible. The very absence of recession forecasts is itself a leading indicator of complacency.
The equity strategy community has somehow managed to outdo even the economists in their collective exuberance. Every single major sell-side strategist has a bullish year-end target for the S&P 500. Every single one. The average target implies double-digit upside from current levels. The range of estimates, which normally spans several hundred points, has compressed to the narrowest band I can recall.
This is what happens when career risk trumps intellectual honesty. No strategist wants to be caught flat-footed if the market rips higher. The problem, of course, is what history teaches us: that when everyone clusters on one side of the boat, the boat capsizes.
It’s not just the strategists. The analyst community has effectively abandoned the “sell” rating altogether. Fewer than five per cent of all ratings on S&P 500 stocks carry a sell recommendation. That’s not analysis; that’s marketing. When the very people paid to find overvalued securities can’t identify a single one worth selling, you really need to ask: what exactly are investors paying for?
Then again, look at how institutional investors are positioned. As per the latest Bank of America Corp. survey, portfolio managers have taken down their cash allocations to record lows. We are talking about barely more than one per cent in the latest domestic equity mutual fund data. Not to mention just about matching the S&P 500 dividend yield.
But the major point there is that despite all the talk about market liquidity, the professionals are already fully invested and hold no proverbial dry powder. At the second-most inflated cyclically adjusted price-to-earnings (CAPE) multiple of all time (40x), institutional investors have chosen this time to be absolutely fully invested. The risk of being caught in a drawdown and a cycle of redemption has never been as high as is the case today. This is a call for caution for the rest of us, artificial intelligence boom or not.
The positioning data tell the same story. Net long exposure in equity futures sits at or near multi-year highs. The put-call ratio is at the very low end of the range of the past 20 years. Downside protection has become passé. Volatility is being sold, not bought. Everyone has piled into the same risk-on trade: long equities and short volatility.
Now, to be clear. I am not predicting an imminent crash. But it’s always about respecting the probabilities and the entire range of possible outcomes, and respecting John Keynes’ simple adage that markets can remain irrational far longer than most skeptics can remain solvent.
I have been humbled far too many times in my professional career not to understand that basic concept. But I also know that the key to financial success is not trying to time the highs and lows, but to be engaged in the middle 60 per cent of the investment cycle, and we are well beyond that point. And that is my major point: the risk-reward calculus has rarely been this unfavourable for those initiating long positions at current levels.
The margin of safety has evaporated. Valuations, by almost any reasonable metric — price-to-earnings, price-to-sales, price-to-book, market-cap-to-GDP (the Buffett ratio), the Shiller CAPE — are in the top decile of historical readings.
That doesn’t mean markets can’t go higher; it means that the starting point matters for long-term return potential, and the current starting point is a poor one. There are a whole lot of things that need to go right. And when your upside scenario requires perfection, you’re no longer investing; you’re speculating.
History may not repeat, but it does rhyme, and the current verse sounds awfully familiar. The sequence is almost always the same: a period of strong returns breeds complacency, complacency breeds excessive risk-taking, excessive risk-taking compresses risk premiums to unsustainable levels, and eventually — always eventually — something triggers a repricing.
The trigger is almost never what the consensus expects. In 2000, it wasn’t the internet that was the problem; it was the valuations attached to the internet. In 2007, United States housing prices had been declining for a year before most investors acknowledged there was an issue. The proximate cause matters less than the underlying vulnerability, and the underlying vulnerability today is extreme positioning meeting elevated valuations.
When no one expects a recession, when no one recommends selling and when no one holds cash, the market has, by definition, already priced in the best-case scenario. What’s left to discount on the upside? And what happens when reality, as it inevitably does, falls short of perfection? I’ve been accused of being perennially bearish, but the charge is unfair. I’ve been constructive when the data warranted it, and I’ll be constructive again when risk premiums offer adequate compensation for the risks being assumed. Today is not that day.
My advice? Prudence suggests some measure of independence is warranted when the crowd becomes this convinced of any outcome. Reacquaint yourself with the concept of risk.
I am not saying for a moment that the 2026 consensus view will end up being incorrect — stranger things have happened — but the setup for disappointment has rarely been more complete, and the cost of caution has rarely been lower relative to the cost of being wrong.
With all that in mind, perhaps we need to dust off Warren Buffett’s old refrain of being fearful when others are greedy and greedy when others are fearful. It has been far more than three years since we had that second condition on our hands. Right now, greed isn’t just prevalent; it’s universal. I’ll respectfully take the other side of that trade.
David Rosenberg is founder and president of independent research firm Rosenberg Research & Associates Inc. To receive more of David Rosenberg’s insights and analysis, you can sign up for a complimentary, one-month trial on the Rosenberg Research website.
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