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Merrill cuts stock allocation
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January 14, 2002: 8:33 a.m. ET
Brokerage recommends buying more bonds, saying stocks overpriced.
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NEW YORK (CNN/Money) - Merrill Lynch & Co. Inc. told investors Monday to pare the percentage of stocks in their portfolios, saying stock prices seem to be overinflated.
"We have commented that there is a thin line between a liquidity-driven market that anticipates improving fundamentals and a bubble," chief U.S. strategist Richard Bernstein said in a research note. "The equity market may have stepped over that line."
Merrill recommended that stocks make up only 50 percent of a portfolio, with 30 percent in bonds and 20 percent in cash. Previously, Merrill had recommended 60 percent stock allocation, along with 20 percent bonds and 20 percent cash.
Since Sept. 21, 2001, the last day of a dramatic selloff triggered by the Sept. 11 terrorist attacks, the Dow Jones industrial average has risen more than 21 percent, the S&P 500 index has risen more than 18 percent, and the Nasdaq composite index has risen a whopping 42 percents.
Bernstein's comments echoed those last week of Robert Doll, chief investment officer at Merrill Lynch Investment Managers, who said corporate earnings estimates were too high for 2002. Though stock prices would rise in 2002, they are still too high in comparison to companies' earnings, Doll and Bernstein both said.
Merrill and other brokerage firms have suffered from a decline in stock prices and investment activity that began in early 2000, along with an economic recession in the United States that likely began in March 2001. Last week, Merrill announced it is cutting about 9,000 jobs in an effort to cut costs.
Merrill (MER: Research, Estimates) shares fell $1.12 Friday to close at $57.24. 
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