Don't underestimate corporate America, BofA says
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A prominent Wall Street strategist is offering a "mea culpa" for doubting the strength of corporate America following the April tariff saga.
The big picture: Bank of America's Savita Subramanian isn't bullish all around. She sees stagflation ahead, with slowing growth coupled with persistent inflation.
- Yet even with that backdrop, she sees opportunity.
How it works: For a stagflation playbook, Subramanian cites a comparable— though more extreme — period of economic history: the 1970s, marked by sluggish growth and rising prices.
- Value over growth: Large-cap value outperformed growth stocks by more than 59% from 1974 to 1976.
- Stocks over bonds: Large-cap stocks also outperformed long-term Treasury bonds in that same period.
- Dividend-paying stocks: "Dividends contributed ~40% of total returns in the century prior to 2013 vs. just ~15% since," per a client note from Bank of America. Subramanian sees dividends as an attractive form of inflation protected income going forward.
- Be selective: Subramanian adds that today "not all tech is doing well," for example. Look for clean balance sheets and dividend initiation.
Zoom out: For the broader S&P 500, Subramanian's near-term outlook is tepid to cool. In the medium term she's warmer, and long term she's positive, with a year-end price target of 6,300 and a 12-month target of 6,600.
- Her bullishness is rooted in math. At an assumed tariff rate of 15% on the rest of the world, she only sees a 40 basis point hit to earnings.
- "The U.S. isn't exceptional, but Corporate America might be," writes Subramanian, telling Axios "I do not want to be short equities in this environment."
Zoom in: Bank of America does not see the Federal Reserve cutting interest rates this year, and that's fine for stocks.
- Regarding the ideal interest rate level that's good for both inflation and stocks, Subramanian says "the numbers that we're looking at today are actually pretty good. They're kind of goldilocks."
The bottom line: Subramanian is keeping her cool while new tariff headlines are crossing constantly (including while she was on the phone with Axios).
- Companies have "been shifting supply chains, and they've been doing that for years now. It's not a new thing," she notes.
- Unless we see tariff rates hitting "80% tariffs on China" or retaliatory tariffs, this "is a manageable scenario for most U.S. multinationals."
