Last Year’s stock market rally predicted to continue in 2018
Last year’s stock rally has generated some healthy returns for those investors who were in play. Of course many will have missed out, but according to Richard Bernstein, there is no need for regret or anguish. Bernstein expects the rise in equities to continue well into 2018.
Bernstein Bullish
Speaking to CNBC’s Power Lunch, Bernstein remarked that the continued acceleration of earnings around the world was making it very difficult for a bear market to get going. In addition, he pointed out that the abundance of liquidity and cash circulating in markets means there is ‘a lot of ammo’ for people to buy in.
S&P 500
The S & P 500 saw growth of over 18 percent this year, driven by an increase in earnings, global economic growth and the anticipation of lower corporation tax rates being introduced in the US by the Trump administration.
Bernstein’s advisory forecast for 2018 includes recommendations for overweight investment positions across emerging markets, the buying of cyclical stocks in the U.S., and looking into returns of “very short-duration and minimally weighted fixed-income” with the expectation that all of these plays will benefit from changes to the US tax code.
Live Chart – S&P 500
US Tax Cuts
The Trump administrations energies are focussed heavily on cutting the rate of corporation tax from 35 percent to 21 percent.
“Tax cuts for corporations is an unmitigated bullish point. Corporate tax cuts are meant to benefit the owners of capital. Who are the owners of capital? Shareholders.”
Bernstein revealed that his firm’s portfolios had concentrated on overweight materials, gold, gold miners, and holding minimal positions in fixed income. He said, “we have found success in our portfolios by searching for market segments in which capital is relatively scarcer if not scarce.”
Bernstein also commented that investment flows into commodity mutual funds and exchange-traded funds were far less than the money going into fixed income bonds and ETFs between June 2016 and October 2017.
“It’s hard to argue that bonds are starved for capital when nearly a half-trillion dollars have flowed into bond funds and ETFs. However, only about 1/100th of that amount has flowed into commodity funds and ETFs during the period.”