- Richard Bernstein recently told CNBC that the market dominance of Big Tech is a "very bearish sign" for the economy and corporate profits, which has historically been the largest driver of stock gains.
- The Richard Bernstein Advisors CEO pointed to the outperformance of the tech-heavy Nasdaq versus broader indexes, and said that narrow leadership in the market is "an end-of-cycle event."
- Broad market leadership is something that usually happens at the beginning of cycles, he said.
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Richard Bernstein told CNBC on Thursday that Big Tech's market dominance is a "very bearish sign" for the economy and corporate profits, which has historically been the predominant driver of stock gains.
The Richard Bernstein Advisors CEO explained tech's "dramatic outperformance" by comparing the returns of the tech heavy Nasdaq Composite versus the Russell 2000 small-cap index.
The tech-heavy Nasdaq is up 33% year-to-date while the Russell 2000, which features so-called small cap stocks, is down about 1% year-to-date. The Nasdaq has also handily outpaced the benchmark S&P 500, which has added roughly 9% this year, and the Dow Jones industrial average, which has slid 1%.
"If the Nasdaq is outperforming, it implies narrow leadership in the marketplace," Bernstein said. "And narrow leadership is an end of cycle event, not an early cycle event."
He added: "You really want it to be the exact opposite. Early cycles are dominated by broad market leadership."
The outsize performance of tech also manifested itself in the S&P 500 in the four-day span including and following the US presidential election. The information-technology and communication-services sectors spiked roughly 9% and 7%, respectively, over the period. Those were the biggest industry gains in the index.
Big Tech's market dominance has been a major topic on Wall Street after investors watched how quickly the S&P 500 rebounded off its lows in March. Many attribute a large portion of the market's recovery to the outperformance of a small group of mega-cap tech stocks that make up roughly a quarter of the market cap-weighted S&P 500. When Big Tech moves, it drags full indexes along with it.
Bernstein told investors to run a "barbell strategy" in their portfolios against this backdrop. That involves owning technology stocks, but also holding traditional cyclical stocks like energy, industrials, and transports.
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