Big tech faces ‘much more’ than 10% drop: investor Rich Bernstein
Big Tech’s problems may be in their first innings.
Institutional Investor Hall of Fame member Rich Bernstein warns the tech-heavy Nasdaq faces “much more” than a 10% drop in a downturn that will likely last for years.
He blames an environment dominated by rising interest rates as a major catalyst.
“Everyone seems to know that when long-term interest rates go up, you don’t buy long-term bonds. But what people forget is that you don’t want to buy long-term bonds either. long-term equities,” said Bernstein, CEO and CIO of Richard Bernstein Advisors. , told CNBC “trading nation” Wednesday. “What is a long-term action? Simply put, it’s one with a high P/E [price-to-earnings ratio].”
The Nasdaq closed up 0.4% at 13,525.20 on Wednesday. That’s up about 3.5% over the past five sessions.
But Bernstein argues that the recent strength is temporary and compares the backdrop to the tech bubble of the late 1990s to early 2000s. Just like during this period, he sees most of the buzz stories in growth names.
“Tons of promises were made about what the future would look like. Those promises came true between 2000 and 2010. For the most part, they came true,” he said. “But the tech sector gave you negative absolute returns for a decade.”
Bernstein, who spent decades on Wall Street and is known for leading the strategy of Merrill Lynch, said “Trading Nation” last year he was technologically underweight, including the high-flyers in the group. He was also bearish on technology in 2019.
Bernstein suggests most investors are in denial about the coming downside.
“I don’t think too many tech investors today are prepared for negative absolute returns for three, five, or 10 years,” he said.
According to Bernstein, investors should target cyclical areas that benefit from strong economic growth rather than Big Tech. He is particularly fond of raw materials and energy values. SPDR Energy Select Sector Fund, which tracks energy stocks, is up nearly 37% so far this year. Bernstein also liked the energy last year.
“If the nominal economy strengthens, you want stocks that will be very sensitive to that improvement in the nominal economy,” Bernstein said. “This outlook for the next few years is likely to favor cyclicals over more secular producers.”