January 18, 2011
For an antidote to the bearish sentiment coming from David Rosenberg, look at Richard Bernstein. In contrast to Rosenberg’s vision of Japan’s lost decade, Bernstein expects the S&P to outperform emerging markets, at least in the near term.
Until a couple of years ago, Rosenberg and Bernstein were colleagues at Merrill Lynch. They remain close friends, though Rosenberg is now with Gluskin Sheff in Canada, and Bernstein is the founder and CEO of Richard Bernstein Advisors, based in New York.
Bernstein spoke last week at a forum hosted by the Maryland-based investment consulting and technology provider Fortigent, LLC.
Investors are “way too bearish on the US,” Bernstein said, “and they are a little too optimistic about emerging market stocks.”
I’ll discuss Bernstein’s favored asset classes for the coming year, but first let’s look at where he thinks the US economic recovery and markets stand.
Four phases of bull markets
Bernstein believes that bull markets go through four phases, according to Bernstein:
- Denial, when investors say “it can’t happen.”
- Acceptance, when they come to realize that “maybe this is really happening” and start to believe they should have more in the market.
- A “brave new world” of outperformance that will never end.
- A bear market that brings the bull market ends to an end.
US equities are somewhere between phases one and two – between denial and acceptance, Bernstein said. Moreover, he said the economic recovery in the US is “much more normal” than most believe. The economy is almost exactly tracing out the path of the GDP during the recovery from the last two recessions – in 1990 and 2001. In fact, he said, the 2001 recovery was weaker than the current one.
“We have just had a perfectly normal recovery of corporate profits,” he said, “and a perfectly normal recovery of the stock market.”
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