The market has ‘decoupled,’ says BofA’s Savita Subramanian


Let's bring in Savita subramanian she is head of U.S equity and ESG strategy at B of A Securities good to see you nice to see you as well um there's been a few themes this month I guess which is this year that have been dramatically somewhat different from what happened last year right you've seen a lot of risk appetite uh.

Picking up um earnings season not great but seems like the market might have already been positioned for it where does that leave us up you know six percent in the s p in less than a month yeah six percent uh so it feels like a pretty violent move and I think a lot of it was was really just really bearish positioning heading into.

The year and one of the things that we look at is just sentiment across Wall Street by you know Southsiders bysiders and there were two things that stuck out to me one Wall Street asset allocation Brokers lowered their allocation to stocks last year by six full percentage points this is one of the fastest biggest moves that we've seen in the.

History of our data and they put all of that money in bonds so everybody loves bonds at the beginning of the year and then if you looked at hedge funds hedge funds actually ramped up to a 40 percent net long exposure to regulated utilities which is you know I mean this is like the weirdest setup for for you know investors with risk appetites so our.

View is okay if everybody loves bonds and hates stocks is probably not going to work in the you know in the beginning of the year and I think that going forward there's this prevailing assumption that rates are peaking out right now and they're just going to come down inflation is peaking the fed's probably going to Pivot soon I don't.

Know if it's that easy and I mean when you look at the inflation measures a lot of these stickier barometers of inflation are still relatively high so you know I think that it's not a great setup for bonds yet either so yeah it seems like the fed's burden of proof for uh thinking inflation is taken care of is still pretty high so you think yields.

Have room to the upside and I guess what does that mean overall for other asset classes I think you'll have room to the upside I mean think about it quantitative tightening so we're moving from the two biggest buyers of the tenure the fed and China basically have left the building and that demand vacuum I mean I don't know who's going to fill.

It and you know if you look across the globe Central Bankers everywhere are relatively tight so I think this is an environment where we can't just bet on Lower for longer everything I think we need to think about you know rotating out of certain low rate beneficiaries into other parts of the market and there are lots of really great opportunities.

Right now in our view I mean there's a story you can tell just reading the market and saying yet yes people are underexposed to stocks coming into the year but I'm seeing steel stocks hit new highs you see consumer cyclicals doing a little bit better right last year the s p went down you know 25 from high to low while earnings.

Were still at a record so maybe we've positioned for you know lower profitability in other words there's a bullish case to be made right now but now it seems like it has to prove yesterday there is a bull case to be made and I think the bull case is exactly what you point out which is the market has decoupled and we've seen new.

Leadership from Commodities which I think are really interesting right now I mean when you look at Commodities this is a complex that actually has Supply discipline today and I think this is a game changer for Commodities and commodities stocks when you think about it you know oil companies are not flooding the market with extra Supply.

They're actually staying very disciplined in terms of production maybe they're producing too little so you know earnings could get smoother for these areas of the market whereas Tech which I think was you know the the poster child for globalization low interest rates like everything that we enjoyed for the last 20 years is maybe in the Penalty.

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