The recent surge in Treasury yields does not spell doom for equities, according to Savita Subramanian of BofA Securities, who appeared on CNBC’s “Fast Money” on Tuesday. Rather, Subramanian considers the rise in bond yields as a positive sign for the economy.
Subramanian, the head of equity and quantitative strategy at BofA Securities, believes that companies are shifting their focus towards efficiency and productivity, moving away from relying on leverage buybacks and low financing costs to boost earnings. She points to the adoption of tools like artificial intelligence and automation as evidence of this trend.
In fact, Subramanian claims to hold the most optimistic view on stocks since the 2008 financial crisis. She believes that productivity will be the driving force behind the next phase of the bull market.
According to Subramanian, the era of quantitative easing, zero interest rates, and negative real rates, which made it challenging to accurately value equities, is behind us. While she expects less robust returns in the future, she anticipates more sustainable returns.
In May, Subramanian raised her year-end target for the S&P 500 by 7.5% to 4,300, with a potential high of 4,600. As of Tuesday, the index closed at 4,496.83, reflecting a year-to-date increase of 17%.
Subramanian highlights that companies have become more disciplined in managing leverage, a lesson learned from the 2008 financial crisis. She also suggests that industrials, energy, and financials are sectors well-positioned to withstand higher interest rates due to their improved financial health.
Despite her belief that corporate America has become more efficient, Subramanian acknowledges that stock prices won’t rise in a linear fashion. However, she expresses confidence in the Federal Reserve’s actions and believes there is room to ease in the event of a future downturn.
Please note that the above information is for reference only and should not be considered as financial advice.
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