Institutional Investor Hall of Famer Richard Bernstein predicts more momentum in stocks closely tied to the economy.
He expects more enthusiasm surrounding the state of the recovery will drive more investors away from richly valued mega cap growth names, which include big tech high flyers.
"If you're buying them today at these types of valuations, you're effectively making a bet that the U.S. economy, that U.S. corporate profits, will stink going forward — that these are going to be the only companies that can possibly grow," the Richard Bernstein Advisors CEO and CIO told CNBC's "Trading Nation" on Wednesday.
"History shows very clearly that if you believe that things are going to get better, then you want to have cyclical bent in your portfolio," he said.
Even though Bernstein contends the economy improving, he's not jumping into the deep end just yet.
"We should not be overly enthusiastic, and say the glass is filled with champagne," said Bernstein. "But I think we want to be somewhat optimistic."
He acknowledges it's important to differentiate between the private and public sectors in the economy.
"The private sector is probably a little bit more healthy than people probably think. The public sector, however, is ill," he noted. "I mean because of the needed cushion to cushion the economy because of Covid-19, U.S. financial conditions, the government's financial conditions, are probably the worst ever."
Bernstein is advising investors to watch potential negatives closely. He cites the combination of a highly speculative market and a substantial increase in coronavirus cases as the biggest market threat.
To help hedge the risks, Bernstein recommends owning some gold.
"If there is one certainty that investors are faced with right now, is that there's going to be continued uncertainty," Bernstein said. "If one accepts that notion, then it says that gold should still be part of a portfolio."