Widely followed strategist Richard Bernstein is making some surprising predictions for 2010. What should you know?
In case you’re not familiar with Bernstein, he was renowned for being bearish, but turned bullish over the past few months. On November 10th he went from big bear to baby bull when he told the Fast Money desk, “People like me have underestimated the rebound. The economy is slowly getting better.”
Why the change of heart?
Because initial jobless claims, which he and many others consider a leading indicator, had improved dramatically.
Then in mid-December, on the website Business Insider, Bernstein shed his grizzly skin for good -- and put on a pair of bull horns -- when he revealed his 10 predictions for how financial markets will shape up in 2010. His outlook wasn't just optimistic, it was downright rosy.
Four of his predictions really struck a chord with the Fast Money traders. They follow:
- Corporate profits are likely to explode to the upside during 2010. Trailing four-quarter S&P 500 reported earnings growth could exceed 100%. Investors still seem to be under-estimating the operating and financial leverage that is built into corporate profits.
- Employment in the US will probably continue to improve. Consumer Discretionary stocks will likely be among the best performing sectors.
- Stock and bond market returns in the US will again be positive.
- The US dollar is likely to meaningfully appreciate once market-driven short-term rates begin to rise.
How should you trade it?
In November Bernstein told us the best value are in junky names. “The companies that you’d hate to own tend to perform the best. In almost every industry go for lower quality companies."
Huh?
"In 1991 - a time period that was similar to now - 'C' and 'D' rated stocks by S&P went up 90% that year and continued to outperform for 4 years after that," he said.
Why?
"As the economy continues to improve investors shift from focussing on the balance sheet to focussing on the income statement and cash flow. And the junkiest companies have the greatest operating leverage so their cash flow just explodes," he said.
Although Bernstein didn't reveal names he did say "consumer cyclical stocks probably have strong upside potential.
"History shows that as long as initial jobless claims trend downward the performance of consumer discretionary stocks trend up," he concluded.
Want to see Bernstein’s other predictions? Click here and check them out!
* Richard Bernstein is now the CEO of Richard Bernstein Capital Management and a CNBC contributor. Previously, he was the chief investment strategist and head of the investment strategy group at Merrill Lynch.
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Trader disclosure: On December 17th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (BTU), (C), (GS), (INTC), (MSFT), (NUE); Seymour Owns (AAPL), (BAC), (FXI), (INTC), (TSO), (GE), (EEM); Finerman's Firm Owns (MSFT), (NOK), (AAPL); Finerman's Firm Owns (BAC) Preferred, (BAC), (BAC) Call Spreads; Finerman Owns (BAC) Preferred, (BAC); Finerman's Firm And Finerman Own (WFC) Preferred; Finerman's Firm Is Short (IJR), (MDY), (SPY), (IWM), (UNG); Najarian Owns (ORCL) Jan. Calls, Is Short (ORCL) Dec. Calls; Najarian Owns (AAPL) Calls; Najarian Owns (FCX) Call Spread; Najarian Owns (GE) Calls; Najarian Owns (MS); Najarian Owns (RIMM) Jan. Calls, Is Short (RIMM) Dec. Calls; Najarian Owns (UUP) Call Spread
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