BofA's Savita Subramanian says she sees too much euphoria in a popular market group
Speakers
Savita Subramanian
— Head of US Equity & Quantitative Strategy, Bank of America
Summary
Savita Subramanian of Bank of America Securities joins Fast Money to discuss the Fed, her S&P 500 outlook, and market broadening. She remains overweight consumer staples as a contrarian call and expects broadening to continue, favoring equal-weight and small caps. She warns that AI and tech sentiment is euphoric and that rising long-end rates would be especially detrimental to mega-cap growth. Her S&P 500 bullishness has moderated from 2023, though she still sees upside in many non-tech areas.
- Savita Subramanian discusses the Fed decision and market outlook.
- BofA is most out-of-consensus bullish on consumer staples.
- Market broadening is a key theme; equal-weight and small caps are favored.
- AI and tech sentiment appears euphoric.
- Rising long-end rates are seen as detrimental to mega-cap growth.
- S&P 500 bullishness has moderated versus 2023.
- Broad stock sentiment model is not signaling euphoria.
- Capex and manufacturing may support the market more than consumption.
Ideas
Market broadening favors equal weight, small caps
The market has been broadening; S&P equal-weighted has outperformed cap-weighted and small caps have come back. She would stick to the broadening call, especially with capex firmly in place and rising long-end rates being less of an anathema for the broad market. She expects this broadening to continue even if rates move to 5%.
Out-of-consensus bullish consumer staples overweight
Consumer staples is BofA's most out-of-consensus bullish overweight. The sector is disliked and pricing in a lot of bad news, especially after Amazon's grocery announcement. If policy rhetoric shifts toward affordability and provides a lifeline to lower-income consumers who have struggled against inflation, staples could benefit.
Less bullish on S&P 500 than 2023
Her S&P 500 bullishness has moderated from 2023 because the market was cheaper then, with little debt, no capital raises, and low equity interest, while today the economy is booming and sentiment has swung toward wanting to be long stocks and crypto. However, her BofA sentiment model says broad stock sentiment is not necessarily euphoric, so there could still be upside in many areas.
AI and tech sentiment looks euphoric
Sentiment on AI and tech feels euphoric, and she thinks there could be a year where tech does not do as well. This is a contrarian caution against the popular market group even as the broader market broadens.
Higher long rates hurt mega-cap growth
Rising long-end rates are most detrimental to mega-cap growth companies. In 2023 they offset higher rates by cutting capex, costs, and jobs and doing buybacks; today they cannot cut capex because of the AI arms race, so rate rises create more problems for this group.
