An Institutional Investor Hall of Fame doesn’t believe a flattening yield curve will destroy stock market gains.
But the problem is too many investors believe it will, according to Richard Bernstein.
“People are watching the yield curve blip by blip and trying to figure out when it is going to invert. In other words, they’re trying to forecast a forecasting tool,” the CEO of Richard Bernstein Advisors said Wednesday on CNBC’s “Trading Nation.” “That’s kind of weird because even when the curve inverts, it still gives you about six to 12 months to re-position your portfolio.”
His thoughts came as the Treasury spread dropped this week to its lowest levels since 2007.
“History shows that when you have a flattish curve, very similar to what we have today, you have some of the highest prospective 12-month returns for the S&P 500,” he said.
Bernstein, a CNBC contributor who was Merrill Lynch’s chief investment strategist, blames a hangover from the 2008 financial crisis for the skittishness. He’s worried too many investors are bailing on stocks.
“We’ve maybe scarred a generation of investors where people are waiting for the inevitable return of 2008,” he said. “I don’t think anybody has ever grown wealth being scared.”
Since the financial crisis hit in September 2008, the S&P 500 has rallied 122 percent. So far this year, the S&P 500 is up nearly 4 percent. Bernstein is calling for stocks to close the year above current levels, citing strong economic and earnings fundamentals that will continue to drive gains this year.
“It’s very hard for us to envision a prolonged bear market because you just don’t have the sentiment data that you would have at the peak of a cycle,” Bernstein said.