Uncertainty is bullish for stocks: Bernstein

Market strategist turned adviser says many similarities today to early '80s bull

Feb 4, 2013 @ 3:05 pm

By Bruce Kelly

Investment advisers and their clients should cheer when the term “uncertainty” is used to describe today's markets. That term is almost like a billboard screaming of the opportunities in today's market, according to Richard Bernstein, chief executive of an eponymous independent investment adviser.

When investors are “certain,” that's the time to worry about the markets, said Mr. Bernstein, a former chief investment strategist at Merrill Lynch. He spoke today at the Investment Management Consultants Association's New York conference.

The title of Mr. Bernstein's talk was “Fear and Indecision: Sounds Like a Bull Market,” and he stressed that periods of “wine and roses” and euphoria in the market are signals that a bull market is ending.

“This could be the greatest bull market of our careers,” Mr. Bernstein said, drawing comparisons with investors' missing a big part of the run-up in stocks in the 1980s to today's investors who continue to sit on the sidelines.

“Individual investors are not good at picking bull markets,” he said, adding that investors' fears 30 years ago are quite similar to those of today.

First of all, investors were concerned about inflation in the early 1980s, just as they are today. Investors also were worried about federal budget deficits and debt, as well as slowing corporate profit margins. Likewise, investors were fearful of “runaway monetary policy,” oil prices, economic growth of between zero and 2.5%, not to mention federal tax policy, sovereign debt and federal entitlements such as Social Security.

“These are important issues, but there's a difference between thinking like an investor and thinking like a politician,” he said.

Investors' pessimism is actually good news for stocks, he said. “The market is not overvalued, according to our models,” he said. “We're still arguing that the market is very cheap.”

Overenthusiasm for stocks is a typical bear market warning sign, he said, adding that that boisterous type of sentiment does not exist in the market right now.

Mr. Bernstein calls one of his major investment ideas currently the American Industrial Renaissance.

“Small and midcap industrial companies [in the United States] are actually gaining market share,” he said. “Why? Wage compression and energy costs. It's not just natural gas,” he said. “Outside the middle East, the United States has cheapest gas prices in the world.”

“This is really in the first or second inning,” of such a revival in manufacturing, which does not include large global players, he said. “It's the only 'pure play' out there right now.”

0
Comments

What do you think?

View comments

Recommended for you

Featured video

Events

Dynasty's Penney: The professionalization of the RIA industry

The RIA profession is evolving rapidly, but why and how? Shirl Penney of Dynasty Financial examines how the industry is growing and consolidating and what's next.

Latest news & opinion

Small broker-dealers seek legislative relief from annual audits

Bills introduced in House, Senate would remove PCAOB requirement.

Meet our new 40 Under 40s

For a fifth year, InvestmentNews is proud to shine a spotlight on the amazing accomplishments and potential of top young financial professionals.

Merrill re-evaluates commission ban in retirement accounts

The wirehouse's wealth management group announces a fresh look at the ban now that the DOL rule is on the brink of death.

10 biggest retirement mistakes

Adhere to enrollment deadlines and distribution rules or pay a hefty penalty.

DOL fiduciary rule on brink of death as key deadline passes

Justice Department didn't petition the Supreme Court to rehear the case. A mandate from the 5th Circuit would finally lay the fiduciary rule to rest.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print