Market bull Rich Bernstein curbs enthusiasm for stocks, blames slowing earnings growth

Institutional Investor hall of famer Richard Bernstein is adopting a more nuanced bull stance on stocks.

Bernstein isn't as optimistic as he was last year — citing the deceleration of corporate America's profits.

"The most important thing in 2019 is U.S. profits growth is going to slow," the Richard Bernstein Advisors CEO said Monday on CNBC's "Trading Nation." "By our estimation, it's going to slow from about 25 percent to about 5 to 8 percent."

It appears the trend is already impacting stocks. Wall Street is coping this week with disappointing quarterly earnings reports from Nvidia and Caterpillar. Bernstein warns they're not isolated cases.

"One should temper their enthusiasm. We're still overweight stocks. But I think you have to really to temper that enthusiasm with that kind of deceleration in corporate profits," he said. "The number one factor in an equity portfolio in 2019 has to be quality and stability of earnings."

Bernstein, a CNBC contributor, believes that ingredient should be sufficient to protect long-term portfolios.

"It's really across the sector spectrum. There's obviously some tech, there's a lot of health care [and] consumer staples. You can find consumer cyclicals," he said. "You can find all kinds of different companies that could fit that high quality."

Go big?

He also has a second strategy: Go big.

"It's probably a time to move up in market cap. Smaller cap companies are usually more cyclical than larger cap companies," Bernstein noted. "If you want to shield a portfolio, you move up in market cap. Right now, we have virtually no exposure to small and mid-cap stocks."

Despite Bernstein's more cautious tone, he isn't predicting a recession for this year. According to Bernstein, the economic cycle is in its late stages, and it could stay there for quite some time.

"We never had the boom in this cycle. So if you never get a boom, you never get a bust. And, that means the cycle lasts longer," said Bernstein, who expects the S&P 500 to see average or slightly above average returns by year-end.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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