Richard Bernstein, CEO and CIO of Richard Bernstein Advisors, advocates for moving away from the major technology stocks, citing the technology bubble at the end of the 1990s that left technology and communication as the worst-performing sectors from 2000 to 2010.
Bernstein, whose New York-based firm manages more than $10 billion in assets, sees similar market conditions today to when enthusiasm got so great that technology stocks performed poorly for a decade, speaking during the Forbes | SHOOK Wealth Management Virtual Summit.
In further comparing the current environment to that time, he expects cyclical sectors to again outperform going forward, including energy, industrials, small-cap, and non-US. He sees 2021 as a bullish year for those in the right stocks.
With the recent positive news on the vaccine front, Bernstein says the corresponding outperformance of the Russell 2000 and cyclicals ahead of tech stocks was a “shot across the bow.” For those bullish on the future of the US and global economy, he says it is important to look at broader markets.
In the midst of an eventful year in which a pandemic and heated election dominated the headlines, Bernstein says investors and advisors need to focus on fundamentals and avoid event-driven investing.
“Event-driven investing is extraordinarily difficult. There is so much going on today, how do you decide what is an event and what is just noise,” he adds. “How do you structure a portfolio around events? The way I have always suggested is that you don’t, you look at fundamentals.”
Advisors need to put on “blinders,” including for politics, according to Bernstein, who said the fundamentals he focuses on are corporate profits, liquidity, and sentiment and valuation.
Looking forward, he added that 2021 corporate profits are set to boom coming off a basis of depressed earnings from 2020 due to the impacts of Covid-19. Bullish on expectations for 2021, he said earnings growth for the S&P 500 could be 50% to 70% or even as high as 100%. While this first jolt will be coming off a low base, he adds to his optimistic prognostication saying that “every cycle starts with easy comparisons.”
On the liquidity front, Bernstein points to the Federal Reserve signaling it will offer as much liquidity as it can, which could have repercussions down the road, but for the time being, amounts to the Fed “having our backs.”
There is still cause for caution with a divide in the markets between the technology sector pushing innovation and disruption remaining expensive, while the rest of the market remains cheap and underweight in portfolios.
This article originally appeared on Forbes.
