## BofA Securities Optimistic About Bond Moves and the Stock Market
BofA Securities’ Savita Subramanian expressed optimism about the recent increase in Treasury yields during a recent CNBC “Fast Money” segment on Tuesday. Contrary to some concerns, she does not view the yield increase as a threat to equities.
## Bond Move Seen as Positive Signal
Subramanian interprets the bond move as an encouraging sign for the economy rather than a warning of impending economic trouble. She observes that businesses are shifting their focus towards efficiency and productivity rather than relying on leverage buybacks and cheap financing costs to boost earnings.
This shift in focus is facilitated by new tools such as artificial intelligence and automation that companies are increasingly adopting. Subramanian believes that this emphasis on productivity will drive the next phase of the bull market.
## Most Bullish Stance Since 2008 Financial Crisis
Subramanian’s current stance on the stock market is her most bullish since the 2008 financial crisis. She asserts that the era of quantitative easing, zero interest rates, and negative real rates – factors that made equities valuation challenging – is behind us.
While she predicts that the pace of returns might slow, she is of the view that the returns will be more ‘real’. Subramanian raised her year-end target for the S&P 500 by 7.5% to 4,300 in May, with a potential high of 4,600. As of Tuesday, the index stood at 4,496.83, marking a 17% increase since the start of the year.
## Companies and Consumers Becoming More Disciplined
Subramanian also points out that businesses have become more disciplined about leverage, a lesson drawn from the 2008 financial crisis. Consumers too, she notes, have become more disciplined about their financial habits.
She identifies industrials, energy, and financial sectors as potential areas that could thrive in the face of higher rates. According to her, these sectors consist of companies that have become lean and disciplined after being denied capital for the past 10 years.
## Future Predictions
Subramanian maintains that despite the increased efficiency of corporate America, stocks will not continue to rise indefinitely. She suggests that the Federal Reserve’s plans provide some visibility and that substantial hard work has already been done.
She concludes with a positive note, asserting that the 5% short rates should be seen as a positive development, as it provides some room to manoeuvre in the event of a future downturn.
The full report can be accessed here.
Original Story at www.cnbc.com – 2023-09-06 00:11:00
Comments are closed.