The latest jump in Treasury yields is not “death to equities,” BofA Securities’ Savita Subramanian told CNBC’s “Fast Money” on Tuesday.
In fact, Subramanian sees the bond move as a positive signal — rather than an ominous sign for the economy.
“Companies are refocusing on efficiency and productivity rather than juicing up earnings through leverage buybacks and cheap financing costs,” the firm’s head of equity and quantitative strategy said. “Companies are finally focused on efficiency and they have new tools. They have AI [artificial intelligence]. They have automation.”
Subramanian describes herself as having the most positive view on stocks since the 2008 financial crisis, saying that productivity will drive the next leg of the bull market.
“We’re past this experiment of QE [quantitative easing] and zero interest rates and negative real rates and all of this really kind of unnerving stuff that has been hard to allow us to actually value equities appropriately,” she said. “Maybe we don’t see as strong of returns from here, but we see more real returns.”
In May, Subramanian hiked her S&P 500 year-end target by 7.5% to 4,300, with a range as high as 4,600. On Tuesday, the index closed at 4,496.83. The S&P is now up 17% year to date.
“Companies have actually gotten very disciplined about leverage,” Subramanian said. “That’s the lesson that everybody learned in ’08 and even consumers have gotten disciplined.”
She also finds industrials, energy and financials as sectors that should withstand the higher rates. “These are companies that were denied capital for the last 10 years and have gotten very, very lean and disciplined and now are at a better position to handle a higher interest rate environment,” Subramanian said.
Even though she believes the corporate America has learned to do more with less, Subramanian suggests stocks won’t go up in a straight line.
“I don’t think it’s just gravy forever. But I do think we are at a point where we have some visibility with what the Fed is going to do,” Subramanian said. “They’ve already done a lot of the hard work. We are at 5% on short rates. I think we should be happy about that because that means we have some … latitude to ease our way in the next downturn.”
