US stocks may become a "casino", investors should pay attention to these safe havens!

Many Wall Street forecasters have warned that as the US stock market climbs to a series of new highs in 2024, a bubble may emerge—and investors concerned about this scenario should allocate their funds to a few select assets to protect themselves from the eventual bursting of the bubble.

Top economists and founder of Rosenberg Research, David Rosenberg, has been warning for months that a stock market crash may be looming. In the past, he has warned of a potential 39% pullback in the US stock market, which is one of the more extreme predictions on Wall Street. Most investors here are optimistic about a soft landing due to the robust performance of the US economy and the slowing policy rates.

Rosenberg stated in a report to clients, "Watching the market now is like watching a clown blowing up a balloon, and when this huge bubble bursts, the scene will be very spectacular."

Rosenberg pointed out that investors need to remain cautious and avoid herd mentality, especially towards enthusiasm for large tech stocks. Instead, he recommends investors focus on stocks with strong business models, robust growth, and attractive prices, and incorporate some "insurance" into their portfolios.

Here are his top investment recommendations to prepare for a potential market bubble burst.

Healthcare and Consumer Goods

Investors should direct their investments towards sectors that people will always need in the future. Rosenberg particularly recommends paying attention to the healthcare and consumer goods sectors.

Rosenberg wrote, "Focus on what people need, not what they want, anything related to e-commerce, cloud services, and home office is in the nascent stage of structural growth."

Utilities

Utility stocks also show promise. Other forecasters predict that utility companies will see significant increases due to the demand for electricity and data centers brought about by the AI boom.

Rosenberg said, "As we have long said, utilities are the closest to a 'no-brainer' investment choice, and with strong and long-term prospects for US electricity demand enhancing profit visibility, utility stocks have been reclassified as 'defensive growth'."

Aerospace and Defense

He also added that given the escalating geopolitical tensions globally, aerospace and defense stocks may also be worth buying.

"Aerospace/defense has been our long-standing bullish point for years, serving as the best hedge against the increasingly turbulent world, as military spending expands worldwide—and is not affected by the US election on November 5th."

Large Tech

Rosenberg mentioned that while certain parts of the tech sector exhibit bubble characteristics, investors can still find opportunities in some large tech stocks given the prevalence of home office, cloud computing, and remote work. However, he advises investors to wait for better price points to buy into these tech stocks Rosenberg said, "I would rather seize these opportunities at a better price level than today, because the recent surge has eroded future expected returns, keeping us cautious for now. But we will actively buy on any significant pullback."

Safe Choices

Investors should add a "safety net" to their portfolios. This means gold - Rosenberg calls it "the most genuine store of value," as well as government bonds.

"The beauty of gold is that it is not a debt that central banks can easily dismiss, nor is it a currency that governments can order to print. I also favor the US Treasury market, as it offers some of the highest yields among major industrialized nations - and has great liquidity."

Rosenberg also mentioned that Real Estate Investment Trusts (REITs) can be a good way to hedge risks. This is especially true for REITs related to the industrial and healthcare sectors.

He added, "In any case, we must become more thematic and thoughtful in the decision-making process, and be more selective than usual, as US stocks and financial assets have overall become a pure momentum casino."

However, most Wall Street forecasters still expect strong performance for US stocks by the end of the year and in 2025. Goldman Sachs, UBS, Bank of Montreal, and Deutsche Bank have all raised their year-end targets for the S&P 500 index in recent weeks, with new forecasts ranging between 5750 and 6400 points