Stocks vs. bonds high yield munis

We have argued for several years that the US stock market could be in the biggest bull market of our careers. We don’t think there are many fixed-income asset classes that are attractive relative to stocks. However, high yield munis are very equity-sensitive and offer attractive yields relative to the stock market.

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Toward the sounds of chaos

Stock market volatility is always a scary thing. Investors nearing retirement fear their nest eggs will evaporate. Younger investors saving for a home or a child’s college education fear their families’ futures might be in doubt. However, history suggests that allowing volatility to overrule a good investment plan tends to lead to poor performance. It’s not volatility itself that generally leads to poor longer-term performance, but rather it appears to be investors’ emotional reactions to volatility that ultimately lead to poor performance.

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Lack of corporate hubris means elongated cycle

When we started Richard Bernstein Advisors roughly five years ago, we thought the US was entering one of the biggest bull markets of our careers. Today, we are likely in the midst of this long bull market. Despite the general consensus that a bear market is on the horizon and investors’ ongoing interest in protecting potential downside risk, we do not think the Fed, investors, or corporations are yet sowing the seeds for the next recession.

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Financial Times - Investors manic for 'disrupter' stocks

Investors rationalised lofty valuations during the technology bubble with theories regarding the "new economy". "Disrupter" companies are today's rationalisation. Investors seem willing to pay outrageous valuations for disrupter companies because the companies are supposedly changing the world and have no relationship to the economic cycle, to Washington or to geopolitical events.

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EM debt seems risky

At RBA, we search for gaps between perception and reality, and this seems to be the case for emerging market debt. Investors have been lured to these securities by their higher yields, yet the underlying economic and currency fundamentals are deteriorating without commensurate widening of spreads.

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Worried about the Downside?

There have been numerous academic studies that suggest investors' reactions to market risk are not symmetric. Investors consistently react more negatively to losses than positively to gains. At RBA, we incorporate this asymmetry in our sentiment work. Data clearly show that no group of investors is currently willing to take excessive US equity risk. Pension funds, endowments, foundations, hedge funds, individuals, Wall Street strategists, and even corporations themselves remain more fearful of downside risk than they are willing to accentuate upside potential.

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Rich Bernstein on "The Nightly Business Report"

Rich discusses the importance of having a financial plan and focusing on the long term on "The Nightly Business Report" on PBS.

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A Classic Barometer

Investors seem a bit too eager to tout emerging market equities. Much as they did with technology stocks during the early-2000s, investors today are looking for the best re-entry point. Data clearly do not support anymore the notion that emerging markets are a superior growth story, yet investors seem to be ignoring the classic warnings signs for fear of missing out. One such classic warning sign is the slope of the yield curve. Historically, steeper yield curves have been reliable forecasters of stronger overall nominal economic growth and stronger profits growth. While US yield curves remain extraordinarily steep, emerging market yield curves tell a very different and disconcerting story.

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