Savita Subramanian of Bank of America Securities told CNBC’s Fast Money on Tuesday that the recent jump in Treasury yields is not “death for stocks.”
In fact, Subramanian sees the bond move as a positive sign – not an ominous one for the economy.
“Companies are refocusing on efficiency and productivity rather than increasing profits through leveraged buybacks and cheap financing costs,” said the firm’s head of equity and quantitative strategy. “Companies are finally focusing on efficiency and they have new tools. They have artificial intelligence [artificial intelligence]. They have automation.”
Subramanian describes herself as having the most positive outlook on stocks since the 2008 financial crisis, saying productivity will drive the next phase of the bull market.
“We are beyond this quantitative easing experience [quantitative easing] “And zero interest rates and negative real interest rates and all that kind of worrying stuff that was difficult to allow us to value stocks appropriately,” she said. “We may not see strong returns from here, but we are seeing more real returns.”
In May, Subramanian raised her year-end target for the S&P 500 by 7.5% to 4,300, with a range to 4,600. The index closed Tuesday at 4,496.83 points. The S&P is now up 17% year to date.
“Companies have actually become very disciplined about leverage,” Subramanian said. “That’s the lesson everyone learned in 2008 and even consumers are becoming disciplined.”
It also sees that industries, energy and finance are the sectors that should bear the higher rates. “These companies have been deprived of capital over the last 10 years and have become very lean and disciplined and are now better placed to deal with a higher interest rate environment,” Subramanian said.
Although she believes American companies have learned to do more with less, Subramanian points out that stocks will not rise in a straight line.
“I don’t think it’s just gravy forever. But I think we’re at a point where we have some vision of what the Fed is going to do,” Subramanian said. “They’ve already done a lot of hard work. We’re at 5% with short-term interest rates. I think we should be happy about that because that means we have some… freedom to ease our way into the next downturn.”
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