Big Tech’s troubles could also be of their early innings.
Rich Bernstein, an Institutional Investor Hall of Famer, warns that the tech-heavy Nasdaq faces “way more” than a ten% drop in a downturn that may doubtless final years.
He blames a backdrop dominated by rising rates of interest as a significant catalyst.
“Everybody seems to know when long-term interest rates rise you don’t buy long-duration bonds. But what people forget is you also don’t want to buy long-duration equities,” Bernstein, CEO and CIO of Richard Bernstein Advisors, advised CNBC’s “Trading Nation” on Wednesday. “What’s a long-duration equity? Simply put, it’s one with a high P/E [price-to-earnings ratio].”
The Nasdaq closed up 0.4% to 13,525.20 on Wednesday. It’s up about 3.5% over the previous 5 periods.
But Bernstein contends the current power is non permanent and compares the backdrop to the tech bubble of the late 1990s to early 2000s. Just like throughout that interval, he is seeing a lot of the hyped tales in progress names.
“There were tons of promises made about what the future was going to look like. Those promises came true between 2000 and 2010. Largely, they came true,” he mentioned. “But the tech sector gave you negative absolute returns for a decade.”
Bernstein, who has spent many years on Wall Street and is understood for operating technique for Merrill Lynch, told “Trading Nation” last year he was underweight know-how, together with the group’s excessive flyers. He was also bearish on tech in 2019.
Bernstein suggests most traders are in denial of the draw back forward.
“I don’t think too many tech investors today are prepared for negative absolute returns for three, five or 10 years,” he mentioned.
According to Bernstein, traders ought to goal cyclical areas that profit from robust financial progress as an alternative of Big Tech. He significantly likes commodities and vitality shares. The Energy Select Sector SPDR Fund, which tracks vitality shares, is up nearly 37% thus far this 12 months. Bernstein preferred vitality final 12 months, too.
“If the nominal economy is getting stronger, you want stocks that are going to be very sensitive to that improvement in nominal economy,” Bernstein mentioned. “That outlook for the next several years is probably going to favor cyclicals over more secular growers.”