BofA's Subramanian Says Bonds in Rare Competition With Stocks Matt Clinch, Guy Johnson, Anna Edwards and Tom Mackenzie Equity markets face a genuine rival in bonds for the first time in decades, according to Savita Subramanian at Bank of America Corp., who also cautioned that elevated investor sentiment leaves stocks more exposed to disappointment than upside. The risk-return on a 10-year US Treasury now runs above 5%, she said, while her team's own valuation framework suggests S&P 500 Index returns over the next 10 years may not reach that level. "For the first time in decades, bonds actually look interesting again," Subramanian, the bank's head of US equity and quantitative strategy, told Bloomberg Television in an interview. She said US policymakers are focused on preventing longer-term rates from rising too far, with both the Federal Reserve and Treasury Secretary paying close attention to the long end of the curve.
Meanwhile, demographic trends may also suggest rates have a lower ceiling than they did in the 1970s and 1980s, while artificial intelligence could eventually exert disinflationary pressure. That creates a potentially more attractive backdrop for bonds, according to Subramanian, as yields may be unlikely to rise much beyond 6%-7%. While those levels would be high, equities should be able to withstand them, she added.
A bruising selloff for bonds in recent months has been fueled by a sharp repricing of expectations for US interest rate hikes to contain energy-driven inflation. Tuesday's rebound in bonds has already fizzled, with 10-year Treasury yields topping 5.30% on Wednesday morning. Stocks have so far been largely resilient in the face of rising yields.
The S&P 500 closed at a record on Tuesday for the first time since August, buoyed by solid corporate profits and the outlook for AI-related spending. Subramanian sees this sentiment as a potential concern, saying analysts are forecasting all-time highs in earnings growth for the S&P 500 over the next five years. "When expectations are this high, you're more primed for disappointment than actual positive surprise," she said. "This is not the tech bubble of 2000, but I do worry that sentiment has gotten very bullish."Produced with the assistance of Bloomberg AI.
Fuente: Bloomberg Markets · Resumido por HeadlinesBriefing