Economist: The market is 'a little bit frothy right now'

Nick Rose

Last week’s gains had investors cheering on Wall Street as they brushed off geopolitical uncertainty to focus on dovish sentiment from the Federal Reserve. But despite stocks hitting record highs, RSM Chief Economist Joe Brusuelas said the market is overvalued.

“The euphoria in the market is the doppelganger of what’s happening in the economy as we see things begin to decelerate... We’ve all lived through several different economic cycles. This market is overbought. It’s a little bit frothy right now and there’s a little bit too much risk on the economic side.”

His bearish assessment is backed by new data from IHS Markit’s Purchasing Manufacturers Index (PMI), which many economists use as a gauge on the overall health of the U.S. economy, coming in with its worst reading since 2009.

“The U.S. is probably going into a manufacturing contraction in July or August, which will be in line with the rest of the world. So yeah, I think there’s a lot of risk out there, but you can see the euphoria because the Fed’s going to cut rates. There’s a lot of money sloshing around the system,” Brusuelas said.

‘It's going to be the worst summer of travel on memory’

Boeing 737 MAX airplanes sit parked at a Boeing facility adjacent to King County International Airport, known as Boeing Field, on May 31, 2019 in Seattle, Washington. (Photo by David Ryder/Getty Images)

All of this comes as American aerospace manufacturer, Boeing (BA), endures what’s been an incredibly rocky year so far. The company has come under fire in recent months after facing international backlash over the safety of its 737 Max aircraft.

“Boeing and the three big car companies have an outsized role in the economy because autos and aerospace impact everything — all sorts of services and all sorts of goods producing jobs,” Brusuelas said, adding that the auto sector, in particular has a huge affect on GDP every quarter.

“We haven’t even begun to see the real problems due to the issues at Boeing around the 737 Max... It’s literally going to be the worst summer of travel on memory in this business cycle,” he said.

Nick Rose is a producer for Yahoo Finance.

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