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There has been a lot of skepticism about the sharp 16% rise in the stock market since the beginning of the year, especially in the context of the continued slump that began in August.
But Savita Subramanian, equity strategist at Bank of America, sees plenty of reasons for optimism, even as new bricks are added to Wall Street’s proverbial “wall of worry. “
“Stock bears have kept us busy debunking threats: reducing currency crisis, shrinking tech debris, sluggish falling consumers following (pick one) savings overconsumption/resuming student loan bills/oil fuel rental prices/negative wealth effect/threat of refinancing/job loss/an overly complacent VIX,” said in a note Thursday.
In addition to the developing risks, there is a new set of scary headlines that worry investors. But Subramanian sees plenty of opportunities, as the stock market tends to climb a wall of worry and fall down a hopeful slope.
“We reject those dangers and continue to take advantage of more opportunities in stocks than bonds,” he said.
Here are the dangers that investors are worried about, followed by Subramanian’s response.
As interest rates reach multi-year highs, stocks sometimes become less attractive. And if interest rates stay at highs for longer, or rise further if inflation rises again, this may simply put additional pressure on stocks.
But Subramanian offers some perspective:
“This bias of the recent (extrapolating the most recent events to the future) is problematic today, after 20 years of frictionless globalization and unprecedented stimulus measures, or it stops today. Don’t bet on an average decline in capital prices over 20 years. Real returns are still below average, and ERP is higher than it was in the 90s and 2000s. “
China’s economy has yet to fully reopen after the pandemic, and its influence on global industry is huge, but it’s not as big as it used to be.
“It’s not so bad today, after U. S. agencies started moving away from China, moving technology, intellectual assets and factories elsewhere. The U. S. economy has advantages over other regions: a less leveraged personal sector, a more complex Federal Reserve than most other regions, and Technology Leadership. Direct exposure of the S
Well actually. . .
“Trade and geopolitical tensions, chain disruptions, fiscal stimulus and decarbonisation targets justify relocation. Companies talk about relocation, and concrete knowledge now confirms it: 1. 6 million jobs in production, $130 billion earmarked for blank economy projects after the Inflation Reduction Act. “The share of U. S. imports from China has halved since 2014; Mexico and Canada have gained a significant percentage,” he said.
“Real sales expansion in the second quarter was weak due to lower unit volume demand and declining pricing power; However, moderating input prices helped maintain margins. From there, power gains (which have been non-existent in the last 10 years) through new equipment (AI, automation) can create an even lighter benchmark for the workforce, a key positive for S-margins.
“The S-weighted index