Stock Market Bubble Could Lead To ‘Monster’ Buying Opportunity, Says Wall Street Veteran

Jun 12, 2024

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.”

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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.

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This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote

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