S&P 500 looks pretty well positioned: BofA strategist

Stock markets (^DJI, ^IXIC, ^GSPC) are still uncertain about when a Federal Reserve rate cut might materialize in 2024. Savita Subramanian, BofA Securities head of U.S. equity strategy & U.S. quantitative strategy, shares her outlook on Market Domination.

Subramanian says that “the idea that the Fed is going to be cutting demonstrably this year is still up for grabs,” noting that more economic data is needed. She predicts a rate cut will come toward year-end. Despite this uncertainty, she states she is not worried about large-cap companies.

“I think larger companies learned their lessons from the financial crisis,” Subramanian told Yahoo Finance, highlighting financials, energy, and industrials as sectors that have taken advantage of low rates. “Even if rates just creep a little lower from here, I think we’re in an environment where… the S&P 500 looks pretty well positioned,” Subramanian adds.

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Angel Smith

Video Transcript

Speaking about cuts.

Sa I am curious what, what you’re thinking is in terms of timing from the fed and not just timing, but how long those rate cuts are gonna last where they’re gonna end up and then the interplay between that and equity markets.

Yeah.

So, you know, I think the idea that um, that the fed is going to be cutting demonstrably this year is still up for grabs.

Um, you know, we’re, we’re data watchers just like everybody else.

Uh I, I think the, the idea here is though we’re probably close to the peak on shore race and the next move in, in terms of, you know, the fed funds target rate is likely to be a cut rather than a raise.

So that’s good when that happens probably towards the end of the year.

Uh I think our, our economists are, are forecasting that the first rate cut happens in December.

We got one this year and then a few more next year.

Terminal rate, the terminal fed funds rate is around 3.5% but that takes a couple of years to get to.

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And in that backdrop, I don’t worry about large caps because I think, you know, larger companies learned their lessons from the financial crisis.

Um, you know, these companies, especially, you know, some of the more cyclical areas like financials, energy industrials, these companies took advantage of low interest rates and locked in low fixed rate debt obligation.

Big banks haven’t been allowed to lend.

So they’ve been much higher quality over the last 10 years than maybe the regionals and smaller banks.

So even if you know, rates just kind of creep a little bit lower from here, I think we’re in an environment where large caps actually look S and P 500 looks pretty well positioned on top of that.

You’ve got tech companies that are net cash positive.

So despite this little mega cap tech hiccup, there are a lot of advantages that tech companies have.

Um you know, just relative to the broader benchmark and one of them is having cash and returning that cash.

So I’m excited about the S and P 500 over then next 5 to 10 years, not necessarily from a multiple expansion perspective, but from the perspective of inflation protected income for all those retirees that have parked their money in, in, you know, in, in short duration bonds or money market accounts, those investors would be well served moving back into equity income if the fed does start rates demonstrably because these are folks that need stocks that they can live off of.

They need investments that offer a real rate of return.

And that’s where I think that large cap uh companies offer a really significant advantage versus bonds and other fixed income opportunities out there.

Sa what a pleasure to see you.

Um and so many ideas for people who are watching.

Thanks so much, really appreciate your time.

Thank you.

Thanks for having me.