- Richard Bernstein recently told CNBC that the market dominance of Big Tech is a “very bearish sign” for the economy and corporate profits, which has historically been the largest driver of stock gains.
- The Richard Bernstein Advisors CEO pointed to the outperformance of the tech-heavy Nasdaq versus broader indexes, and said that narrow leadership in the market is “an end-of-cycle event.”
- Broad market leadership is something that usually happens at the beginning of cycles, he said.
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Richard Bernstein told CNBC on Thursday that Big Tech’s market dominance is a “very bearish sign” for the economy and corporate profits, which has historically been the predominant driver of stock gains.
The tech-heavy Nasdaq is up 33% year-to-date while the Russell 2000, which features so-called small cap stocks, is down about 1% year-to-date. The Nasdaq has also handily outpaced the benchmark S&P 500, which has added roughly 9% this year, and the Dow Jones industrial average, which has slid 1%.
“If the Nasdaq is outperforming, it implies narrow leadership in the marketplace,” Bernstein said. “And narrow leadership is an end of cycle event, not an early cycle event.”
He added: “You really want it to be the exact opposite. Early cycles are dominated by broad market leadership.”
The outsize performance of tech also manifested itself in the S&P 500 in the four-day span including and following the US presidential election. The information-technology and communication-services sectors spiked roughly 9% and 7%, respectively, over the period. Those were the biggest industry gains in the index.
Big Tech’s market dominance has been a major topic on Wall Street after investors watched how quickly the S&P 500 rebounded off its lows in March. Many attribute a large portion of the market’s recovery to the outperformance of a small group of mega-cap tech stocks that make up roughly a quarter of the market cap-weighted S&P 500. When Big Tech moves, it drags full indexes along with it.
Bernstein told investors to run a “barbell strategy” in their portfolios against this backdrop. That involves owning technology stocks, but also holding traditional cyclical stocks like energy, industrials, and transports.
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