IS THE MARKET OVERVALUED?
Richard Bernstein, 38, director of quantitative research at Merrill Lynch & Co., uses computers to analyze data on thousands of companies in search of winning investment strategies.
ON THE VALUATION OF THE STOCK MARKET
''The stock market is fairly valued. We have not even been close to the valuation extreme of 1987. The market's price-earnings ratio was even higher in 1992. People mistakenly equate price appreciation with overvaluation.''
ON THE CASE FOR STOCKS
''With interest rates easing and earnings stronger than expected, valuation is improving. In addition, companies have so much cash they'll be forced to spend it on dividends, buybacks, and acquisitions.''
ON THE IMPACT OF INTEREST RATES ON STOCKS
''The stock market will be increasingly sensitive to changes in interest rates. That's because as the growth rate of corporate earnings slows down, earnings play less of a role in determining the value of stocks. So, interest rates take on even more importance.''
ON TECHNOLOGY STOCKS
''Technology stocks are the most dollar-sensitive of all industry groups, so the weakening dollar should help them. But a slowing economy could cause some problems, too, since technology is capital spending. I still expect tech stocks to outperform the market in 1997.''
ON LARGE-CAP VS. SMALL-CAP STOCKS
''The economy is slowing, so I'd stick with high-quality, large-cap stocks. Small-caps do best when growth is accelerating. Over the next year, the gap between the performance of large-cap and small-cap stocks will widen.''
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