Bank of America Head of U.S. Equity and Quantitative Strategy, Savita Subramanian, isn’t turning bullish on stocks, per se.

But the noted bear is entertaining the concept that equities could continue to go higher from current record levels by as much as 36% to 6,300 on the S&P 500.

While she’s still bearish, Subramanian outlines five factors that could prove her wrong.


by Matthew Fox, Business Insider

Stock market investors have been well rewarded in 2021, with the S&P 500 notching 60 record closing highs and seeing a year-to-date return of more than 24% per cent.

The record rally now has some bearish market strategists pondering “the bright side” of stocks as their price targets lag further and further behind the benchmark indexes.

Subramanian has a year-end price target of 4,250 for the S&P 500, representing downside potential of about eight per cent from current levels.


That view remains bearish into next year, with Subramanian expecting a 2022 year-end price target of 4,600, or potential downside of about 0.5% from current levels.

Additionally, Subramanian has forecasted negative equity returns over the next decade.

Subramanian is now playing devil’s advocate and looking at what could continue to drive stocks higher despite her bearish call.

1. “It’s dangerous to underestimate corporate America.”

“Today’s labor shortages and on-shoring initiatives would likely incentivize companies to automate, driving further efficiency gains.


Consumer and Industrials sectors would stand to benefit the most from automation gains, given their higher labor intensity.


Semis, select Tech and Industrials would likely benefit most from increased automation spend.”

2. “Tax hit could be manageable.”

“A watered down infrastructure spending plan has Democrats slimming down the proposed tax bill to just 15 per cent minimum and one per cent tax on corporate buybacks, translating into a ~1 per cent hit to earnings per share vs. the previous bill’s estimated ~5 per cent.”

3. Stocks provide yield and protection against inflation.

“Commodities offer inflation-protection, bonds offer income, but neither offers both. Stocks sit in the sweet spot offering inflation protection as well as yield.”

4. Government indebtedness has seen positive endings in the past.

“Government debt/GDP is north of 1.2x GDP (an all-time high), well above corporate/household debt/GDP. But prior peaks in gov’t debt/GDP ended well.


In the former, GDP outpaced debt growth, and equities saw better returns during and following periods of elevated government indebtedness.


Based on Biden’s modified Build Back Better plan, our economists believe deficit expansion will be less than expected.”

5. “Potential small cap bull market.”

“A small cap bull market could also suggest upside risk to our long-term S&P 500 forecast: S&P 500 monthly returns have been positive more frequently during months of small cap leadership (hit rate of 72 per cent vs. 63 per cent for all months since 1979).”


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