Tags: Bernstein | small | cap | stocks

Richard Bernstein: Small Cap Stocks Benefiting From US Strength

Thursday, 23 Jan 2014 08:07 AM

By Dan Weil

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While the Dow Jones Industrial Average has dropped 1.2 percent so far this year, the Russell 2000 index of small stocks has gained 1.5 percent.

That reflects the superior economic environment in the United States compared with overseas, says Richard Bernstein, CEO of Richard Bernstein Advisors, because small stocks are more tied to the domestic economy than large ones are.

"Small stocks have been up," he tells CNBC.

Editor’s Note:
38 Trades That Could Turn $1,000 Into $49,000

"Part of what's happening in large cap land — multinational exposure is hurting them. The market is starting to recognize the difference, that whatever is going on here in the United States is healthier than what's going on in the emerging markets."

Bernstein notes that it's not surprising that Wall Street strategists are calling for gains by the stock market this year.

"They're getting more bullish, but I bet if you went back and looked historically, this is pretty normal for this part of the cycle — that everybody is bullish," he explains.

"The skepticism is waning. That should happen, but when skepticism wanes and it becomes overenthusiastic, that's a big difference. But I don't think we're there."

As for forecasts, John Prestbo of MarketWatch sees a 60 percent chance that stocks will rise in 2014.

With the Dow Jones Industrial Average soaring 26.5 percent last year, he looked at the other 18 years in which the Dow has gained between 20 and 30 percent.

In the first year following those gains, the Dow rose 11 times and fell seven.

That means the Dow rose in 61 percent of the 18 instances. "Thus, history suggests a 60 percent chance that the market will rise this year, though perhaps not as much as last year," Prestbo writes.

Editor’s Note: 38 Trades That Could Turn $1,000 Into $49,000

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