The way to start 2023 is not to look at the equity market and ask when technology stocks are going to bounce back, according to Rich Bernstein. Investors entranced by the winners of the last decade are missing the point, the widely respected strategist said in a webcast last week.

“It pays to be six months late rather than six months early,” Bernstein said, while urging advisors to remain cautious. Being too late rather than too early in anticipating a turn in the markets “works 70% of the time.”

That’s because “the biggest drawdowns occur late in bear markets,” he continued.

The world is changing, and the current round of volatility signals a change in market leadership. Bernstein continues to favor the energy sector in spite of its strong performance last year.

Bernstein's eponymous firm manages an array of ETF portfolios and separately managed accounts (SMAs), many of which beat the S&P 500 and leading rival portfolios in 2022. Before starting his own asset management firm in 2009, Bernstein spent several decades as chief market strategist at Merrill Lynch, where he was named Wall Street's top strategist 18 times by Institutional Investor.

In teh webcast, he noted that last year's stock market was filled with ironies. The U.K. stock market was one of the best-performing major markets in the world even though, to an outsider, that nation’s political and economic situation could easily spook investors. England changed prime ministers three times in just a few months. But two of the biggest companies in the British stock market are Shell and BP.

“Our overweight to Europe was a sector effect, not a country bet,” Bernstein explained. Meanwhile, 70% of the world’s stock markets outperformed the U.S. in 2022.

How dramatically is the world changing? Bernstein displayed a scatter diagram of different industries’ projected long-term growth rates. Energy was the leader, while technology companies were near the bottom. Even utilities are beating technology companies’ growth prospects.

Cyclical companies’ earnings growth prospects are going up, while technology concerns are seeing their growth estimates fall.

Why? Secular inflation is a major factor. “Will [inflation] be less than 1% or greater than 3%? We are betting it will be greater than 3%,” Bernstein said. “Many portfolios are betting it will be less than 1%.”

Bernstein is the founder of Richard Bernstein Advisors in New York.