Richard Bernstein: we're still only in the first phase of this bear market

Richard Bernstein, chief executive, Richard Bernstein Advisors

“Bear markets have three phases,” Richard Bernstein, the founder of the $9.5bn asset manager that bears his name and former chief investment strategist at Merrill Lynch, tells Barron’s. “The first is that investors view it as temporary, the second is that it’s worse than anyone could have expected, and finally, that it will never end.”

It’s clear that investors are still trying to guess whether the bottom has arrived and whether there are already opportunities. That suggests we are still in the first phase of this crisis.

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The US is already in a deep recession that will get worse. “Unemployment is going to be a lot higher than people could ever imagine. Whether it’s 15% or 20% – who knows?”. So he still favours government bonds, defensive stocks such as consumer staples and healthcare, and gold. The time will come to buy more cyclical sectors, but “the early bird doesn’t catch the worm”, he says in a recent update for investors. History suggests that it’s better to buy cyclicals such as basic materials six months after the market bottoms rather than six months early, so wait for the economy to turn.

But we should already be asking what people will be worrying about in 12-18 months’ time. He thinks the recovery will be slow and weak, but the amount of stimulus being pumped into the economy worldwide will increase the risk that is accompanied by inflation. “We won’t have a V-shaped recovery … the only question in my mind is whether we have stagnation or even stagflation.”