BofA’s Savita Subramanian: We are in a really good spot in terms of corporate earnings

Summary

Savita Subramanian argues the U.S. economy is strong and corporate earnings are surging 20%, making it hard to be bearish. She recommends rotating into cheap, GDP-sensitive cyclical sectors like industrials, materials, semiconductors, and metals. Separately, she makes a distinct bullish case for oil and energy companies based on capital discipline, power bottlenecks, and undervaluation.

• U.S. corporate earnings are tracking 20% growth, well above consensus, with healthy economic momentum.
• Cyclical, GDP-sensitive sectors are the cheap area of the market poised to benefit from a capex boom.
• Named sectors include industrials, materials, machinery, construction, semiconductors, and metals.
• Oil and energy companies get a separate call due to capital discipline, power constraints, and attractive valuation.
• Oil companies began outperforming before the Russia-Ukraine war, suggesting structural demand drivers.
• The Fed potentially tightening indicates the economy may be running too hot, a positive for cyclicals.
• The broad S&P 500 index is seen as slightly fraught due to supply/demand imbalances.