Domestic equities are still a bargain and should remain so for a while, even though many institutional investors are passing on them, Richard Bernstein said Tuesday.
“We still think we’re in the middle of a tremendous bull market,” said Bernstein, chief executive and chief investment officer of Richard Bernstein Advisors, which has some $3.5 billion in assets under management. Speaking at a news conference, he said his firm is overweighting domestic stocks. That’s because the bull market is in “the sixth inning”—or about two-thirds over, according to Bernstein.
Bernstein also says the street’s “underweighting” of the U.S.stock market, including numerous pension and hedge funds, is puzzling.
Every recent indice points to growing consumer confidence along with an increase in hiring, he said, noting that the economy has now been strong for several quarters.
Yet despite consistently good numbers, there have been outflows from U.S. equity funds for 22 of of the last 26 weeks, he noted.
So, if investors shouldn’t worry in the short term about the United States, what should they worry about?
The European Central Bank, unlike ours, has promised a loosening of monetary policy over the last few years, but has not delivered—unlike our central bank, whose easy money policies Bernstein praised.
“We think the European Central Bank (ECB) has been ham-handed in the way it has dealt with the situation in Europe. They’ve tightened monetary policy in Europe,” according to Bernstein. He said the ECB has done this despite consistently promising to follow the lead of the Fed. Now, Bernstein said, they are again promising easy money.
“My guess is that they’ll disappoint again,” said Bernstein, who emphasized that he has no inside sources.
Bernstein also noted that the German economy, the strong man of an otherwise weak European economy, is in a strange place. Faced with pressure to continually bail out the weak Greek economy, the best thing for Germany might be for Greece and other weak economies to stay in the European Central Bank. Weak nations continuing to use the euro, he argues, would keep the currency from strengthening, which could be bad for European exports.
“Greece leaving the Euro,” said Bernstein in his firm's January Insights newsletter, “might be very bad for the German economy. German productivity has been waning, and a combination of weakening productivity and a stronger Euro could make German exports uncompetitive.” Bernstein joked that “one might argue that the best thing to happen to Germany has been Greece.”
Bernstein is also is a bear on energy, arguing stocks are at near record numbers, and emerging market investments. He is optimistic on Japan, which, he predicted, will gain from a depreciating yen.
Bernstein also likes long-term U.S Treasuries as a diversification play. They, along with intermediate Treasuries, high-grade corporate bonds, municipal bonds and gold, have very little correlation to the stock market. He said that long-term Treasuries’ five-year correlation to the S&P 500 is now some -0.7.