Larry Summers – Get out of U.S. Equities

“Be careful in the equity markets,” warned Larry Summers. The bond market is predicting a recession but, he said, the equity market has not priced that in.

Summers is a professor emeritus at Harvard University and a former secretary of the Treasury. He was a keynote professor yesterday at the Morningstar Investment Conference in Chicago.

The consensus economic forecast is for a recession, he said, but earnings forecasts have not incorporated that expectation. Yet the bond market is signaling danger. The yield curve and the Fed funds forward rates are predicting six or seven rate cuts in the next two years.

“That won’t happen without a recession,” he said, “and a recession is not priced into equities.”

The stock and bond markets are saying different things. That disjunction creates opportunities for investors, Summers said.

He said he would be short U.S. large-cap equities.