Market broadening is very healthy, says Richard Bernstein Advisors CEO Richard Bernstein

Bernstein warns that the performance of the "Magnificent 7" and Crypto has been heavily driven by speculation and excess liquidity. Liquidity is the "lifeblood of speculation." If the Federal Reserve (potentially under a hawkish nominee like Warsh) tightens policy to fight inflation or stabilize the economy, they will "take the punchbowl away." Without excess liquidity, speculative assets with high valuations are the most vulnerable to a correction. High valuations (trading around 40x earnings) compared to the broader market. If liquidity remains abundant or the "AI boom" narrative continues to drive momentum regardless of rates.

Bernstein suggests commodities are a viable way to play a potential weakening of the US Dollar. If the Fed cuts rates while the economy remains hot (high nominal GDP), the dollar is likely to depreciate. Commodities are "hard assets" that historically appreciate when the currency they are priced in (the dollar) loses value. Historical correlation between falling dollar and rising hard asset prices. If the Fed becomes more hawkish (e.g., under a nominee like Warsh), the dollar could strengthen, hurting commodity prices.