A decade ago, Rich Bernstein, CEO and CIO of the eponymous asset management firm, predicted that U.S. investors were about to experience the greatest bull market of their lifetimes.
For those lived through the 1980s and 1990s, that seemed like a stretch at the time. It doesn’t anymore.
Equities were remarkably cheap after the financial crisis. In 2012 when the U.S. economy was in the early stages of the longest, softest recovery in modern history, Bernstein described America as "the smartest kid in summer school."
Bernstein, a former Merrill Lynch market strategist who was named to Institutional Investor’s All-America research team 18 times before starting his own asset management firm. That firm now manages several mutual funds for Eaton Vance and provides six ETF asset-allocation, separately managed accounts strategies to major financial institutions, among other investment vehicles.
In a recent interview, he didn't predict that the U.S. bull market is over. But it’s obvious the easy money in America already been made and U.S. investors have grown conditioned annualized stock market returns in the 15% area.
What gives him some cause for concern is the likelihood that the decade we are entering will look very different from the last. Many investors don’t seem to realize that the world is changing in front of their eyes. In this kind of environment, it's easy for complacent market participants to get caught flat-footed.
Even with all the fiscal and monetary stimulus, many observers still think inflation is permanently dead. The inflation consensus is 2%, “but I’ll bet it’s higher,” Bernstein said.
That’s a major issue for vulnerable long-duration assets, like technology companies and venture capital-backed businesses, not to mention long-term bonds. “Tech investors should be worried about a bubble,” Bernstein warned.
Pensions and endowments are worried about inflation, yet they are “investing in venture capital,” Bernstein continued. “That makes no sense.”
Value investors are hoping for the long drought for less expensive stocks to end. In a January webcast on value investing hosted by Ariel Investments, longtime equity manager Bill Miller of Miller Value Funds predicted “a consumption boom because people are pent up and savings are so high.” Miller expects value to outperform growth “for at least a year” after the pandemic ends.
Many think business travel may have taken a permanent hit, but Bernstein isn’t so sure. The company that “makes the effort to see a customer will win the business, so it could partly rebound due to competition,” he said. Furthermore, the working-at-home trend could eventually be muted by “intra-company personnel competition.”