Richard Bernstein: Bullish on US stocks
Richard Bernstein Advisors is bullish on US equities (USMV) (SPLV). A major reason that drives its enthusiasm for US stocks is its assessment that the worst of the corporate profits recession is already over and the trough was seen in 4Q15. The firm is of the opinion that corporate profits will slowly recover in 2016 and then gain momentum in 2017.
As a result of this assessment, the firm has increased exposure to US stocks since the beginning of 2016. It has gone from being defensive and large-cap-oriented to being aggressive and going lower on the market cap. A defensive position means higher exposure to consumer staples (PG), utilities (PPL), health care (PFE), and telecom services (TMUS) compared to other sectors. Several ETFs (XLP) (XLU) (XLV) (FXH) give you exposure to these defensive sectors.
The firm has become overweight in sectors like energy, materials (XLB), financials (XLF), and technology (XLK). This is so because these sectors tend to do well as the profit cycle takes a turn for the better.
Against the consensus
In his Insights newsletter for August 2016, while expressing that US stocks look fairly valued, Richard Bernstein was quick to point out that this stance of theirs is different from the general view. He stated that Richard Bernstein Advisors “remains quite out of consensus in our view that the US equity market is not overvalued.”
He said that it was important to view the firm’s stance with the understanding that we’re not at the beginning of a bull run and that stocks are not “dirt cheap.” Thus, investors need to be cognizant of the fact that we’re deep into the current bull run, and when the firm says that US stocks are not overvalued, it’s not the same as saying that they’re cheap.
Bernstein stated, “our work suggests that the market is roughly fair value when the current S&P 500 earnings yield is compared to the current 1.5% 10-year note.” Its research is presented in the graph above.
Richard Bernstein’s fifth chart is related to Brexit. We’ll look at that in the last article of this series.