(Excerpts from the Reuters Global Markets Forum conversation)
By Michael Connor
NEW YORK May 31 Wall Street's rally is not
nearly done, with cyclical stocks set to ride higher even as
hopes dim that America's government can deliver
business-friendly economic reforms, U.S. money manager Richard
Bernstein said on Wednesday.
CEO of RBAdvisors, and a former chief investment strategist
at Merrill Lynch, Bernstein focuses on company profits at the
sector level and said in the Reuters Global Markets Forum he
sees no signs a rally that began last year in U.S. stocks is
Investors now steering money to other areas are ignoring the
bright prospects for U.S. corporate profits, which Thomson
Reuters I/B/E/S has as up 15.4 percent in the first quarter from
The following are edited excerpts from GMF:
Question: The S&P 500 is up 300 points from November. Is it time
to take some money home?
Answer: The shift to cyclicals during 2016 that started in
February was based on fundamentals. The election (of President
Trump) exacerbated that run as the markets began to look for
overheating and inflation based on the combo of a healthy
economy and Washington's proposals.
However, the "sugar high" has evaporated. Unfortunately,
that has reinforced investors' fears about growth, and you've
seen a massive defensive run. I would argue the defensive run is
NOT based on fundamentals. Rather, it is momentum investing and
fear. The bull market isn't over in our view.
Q: What do you take from the strong U.S. first-quarter profits?
A: That makes the defensive run so curious. The average U.S.
company is strongly growing profits, but no one seems to care.
Quite weird. We don't see the U.S. profits cycle peaking for a
few quarters yet.
Q: Are there big variations in earnings gains among sectors?
A: Earnings in most cyclical sectors have been quite healthy
.... (Diverging) U.S. sector performance would lead one to
believe that the U.S. is heading for significant slowdown or a
recession. Neither of which seem evident.
Q: Are there signs businesses are overinvesting in a way that
often precedes a downturn?
A: CapEx is typically during the later stages of the boom ....
Well, cyclicals aren't at that place now: that's for sure. No
boom in CapEx is good and bad. Good because it means no over
enthusiasm, which argues for longer cycle. Bad in that it means
continued slower-than-trend growth.
This interview was conducted in the Reuters Global Markets
Forum, a chat room hosted on the Eikon platform. For details,
please follow this link: here
(Reporting By Michael Connor in New York)