Investing

Missed out on this year's rally? This forecaster says stocks will go up again in 2018

Key Points
  • "Earnings around the world are still accelerating," the CEO of Richard Bernstein Advisors said.
  • "It's really hard to get a bear market going when earnings are accelerating."
  • Stocks have had a banner year, with the S&P 500 soaring more than 18 percent in 2017.
Where to put your money for 2018
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Where to put your money for 2018

If you missed this year's stock rally, fear not: Equities will go higher next year, according to Richard Bernstein, CEO of Richard Bernstein Advisors.

"Earnings around the world are still accelerating," Bernstein told CNBC's "Power Lunch" on Thursday. "It's really hard to get a bear market going when earnings are accelerating."

He also noted there is a lot of cash in the market, meaning "a lot of ammo for people to buy the dip."

The has soared more than 18 percent in 2017, with stocks boosted by strong earnings growth, a global economic expansion and expectations for lower corporate taxes.

A trader wears a hat reading Dow 23,000 on the floor of the New York Stock Exchange (NYSE) on October 17, 2017 in New York City.
Getty Images

However, "most people really are bearish," said Bernstein, former chief investment strategist at Merrill Lynch. "Everybody is scared of the equity market, and they think that 2008 is going to replay anytime and have to protect against that. That's not the way to make money."

In his 2018 outlook, Bernstein recommends overweight positions in emerging markets, cyclical stocks in the U.S., and "very short-duration and minimally weighted fixed-income," noting these plays will be supported by the likely overhaul to the U.S. tax code. The revamp would, among other things, cut the corporate tax rate to 21 percent from 35 percent.

"Tax cuts for corporations is an unmitigated bullish point," Bernstein said Thursday. "Corporate tax cuts are meant to benefit the owners of capital. Who are the owners of capital? Shareholders."

In his report, Bernstein says his firm's portfolios have been overweight materials, gold and gold miners, while holding minimal positions in fixed income.

"We have found success in our portfolios by searching for market segments in which capital is relatively scarcer if not scarce," he said, noting that flows into commodity mutual funds and exchange-traded funds were dwarfed by the amount of 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."

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