Investment Strategies

Bernstein: A bull run to rival 82

Dec 16, 2012 @ 12:01 am

By Dan Jamieson

+ Zoom

Forget the “new normal.” Investment strategist Richard Bernstein says the best place to invest now is in U.S. stocks and long-duration U.S. bonds.

Domestic equities are in the “midst of a major bull market that could ultimately rival 1982's,” Mr. Bernstein wrote in a report on his 2013 outlook.

His reasoning: Continued negative sentiment, low valuations for U.S. stocks and easy money from the Federal Reserve should help U.S. stocks outperform emerging markets next year.

“Honestly, in my entire career, I don't think I've ever seen a period where people are as afraid of equities,” Mr. Bernstein, founder of Richard Bernstein Advisors LLC, said in an interview.

He thinks the rush into emerging markets by investors looking for growth will turn out to be a mistake.

CONTRARIAN VIEW

“That's an old story — it's passé,” Mr. Bernstein said. “Emerging markets were the biggest beneficiaries of the global credit bubble, because the assets that did best in the credit bubble were emerging markets, commodities, real estate and hedge funds — all credit-related assets.” With the credit bubble deflating, emerging markets will underperform, he added.

That advice runs counter to the new normal hypothesis of slow growth in developed countries, which has led advisers to seek returns in emerging markets.

And forget about a bond bubble.

Rates for long-term Treasuries will continue to fall, based on the “overwhelming negative sentiment toward the long end of the curve,” Mr. Bernstein said in his report.

“People are now gaga over short-duration funds, but I don't get it,” he said.

Mr. Bernstein predicted that inflation will remain tame, and that gold and other commodities will underperform. He likes smaller “U.S.-centric” industrial stocks because of narrowing wage disparities with other countries, lower energy and transportation costs, and political stability. Smaller U.S. bank stocks also are likely to outperform.

djamieson@investmentnews.com Twitter: @dvjamieson

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