Other market gurus have been raising alarms this year, warning that wrenching stock market declines are on the horizon. Among the respected long-time market watchers who aren’t buying into doom and gloom is Richard Bernstein. After 21 years as a top investment strategist with Merrill Lynch, he founded investment advisory firm Richard Bernstein Advisors in 2009, where he serves as CEO and chief investment officer (CIO). “The signs of what would really signal a true bear marketare really nowhere to be seen,” he asserted on CNBC. Moreover, he believes that constant talk of a “late cycle” economic environment is confusing investors and causing them to make poor decisions: “Late in the cycle makes it sound like the abyss is minutes away. That’s not really where we are.”
“The signs of a true bear market are really nowhere to be seen.” — Richard Bernstein, CEO & CIO of Richard Bernstein Advisors, formerly of Merrill Lynch
Source: CNBC
Wrong Time for Bonds
In talking about late cycle economic developments, Bernstein told CNBC, “We are seeing stresses in the economy, tight product markets, tight labor markets, but that is normal.” Elaborating on the poor decisions that “late cycle” talk is spurring among investors, he cited “massive flows into bond funds at a point when the economic environment is such that it’s very poor for bonds and bond returns.”
Specifically, he noted that inflationary expectations hit a trough in June 2016, and since then inflation has been moving upward, by various measures, and is likely to continue upward. While stocks have registered robust gains since then, and commodities also are up, bonds have posted losses, which is exactly what one would expect in a period of rising inflation and inflationary expectations, he observed.
“Everybody is kind of underweight pro-inflation investments,” Bernstein added. He favors energy, materials, industrials and gold in this environment. (For more, see also: 6 Beaten Down Stocks Ready For Big Rebounds.)
