The stock market is currently facing a potential bubble, and this could lead to a significant buying opportunity, according to a Wall Street veteran.
What Happened: Richard Bernstein, the chief investment officer at RBA, has warned that the most expensive stocks in the market are likely overvalued and could be heading for a correction. This, however, could present a “monster” buying opportunity for other areas of the market, reported Business Insider.
Bernstein highlighted a discrepancy between the debt and equity markets, suggesting a potential market correction. He pointed out that while credit spreads are narrowing in the debt market, indicating growing corporate profits, only a narrow group of stocks are dominating the equity market, implying stagnant profits for most companies.
He suggested that the bond market could be signaling a credit event and a wave of corporate bankruptcies. However, the more likely explanation is that the most expensive stocks are overvalued and due for a correction, while the rest of the companies in the S&P 500 are showing signs of strength.
“Fundamentally, it makes zero sense. The bond market is saying corporate profits are going to be strong … but the equity market with this incredibly narrow leadership of seven companies is saying that it’s an apocalyptic earnings outlook,” Bernstein said.
“We like everything except for seven stocks. I actually think the opportunity set is probably the broadest it’s ever been in my entire career,” he said. “I think the opportunity is monstrous here.”
Why It Matters: This warning from Bernstein adds to a growing chorus of concern about the current state of the stock market. Earlier this month, economist Harry Dent predicted a “crash of a lifetime,” suggesting that the S&P 500 could plummet by 86% from its peak.
Similarly, economist and financial commentator Peter Schiff warned that U.S. stocks are overpriced, advising investors to be more selective in their investments.
Despite the warnings, Bernstein sees a silver lining for investors who have diversified away from the most expensive mega-cap tech stocks. He believes that a bubble popping would be good news for their portfolios, as it could pave the way for a “lost decade” in the stock market, during which small-cap, energy, and emerging market stocks could perform exceedingly well.
Read Next: Woman Facing 30 Years in Prison For Bong Water In Fargo
Image Via Shutterstock
This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote
Market News and Data brought to you by Benzinga APIs
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
