In her latest note, BofA's Savita Subramanian points out that some of the cash-starved sectors of the past decade may be better, safer opportunities for return as they will likely be beneficiaries of pricing power due to demand outstripping supply, such as financials, homebuilders, and materials, and commodities and credit will benefit as a result as well, as EPS peak and focus shifts to fundamentals. Here are the highlights from her latest note:
- Commodities and credit are safer investments compared to tech and multinationals.
- The financials, homebuilders, and materials sectors have been starved of capital for over 10 years.
- Tech, blockchain, and green sectors have enjoyed a lot of investment, which increases the S&P 500's duration risk.
- Subramanian suggests investing in capital-deprived sectors as bloated growth sectors still need to rationalize their capacity.
- Investment in infrastructure and net-zero capital expenditure could increase demand for commodities.
- Tech and multinationals may decrease in value as protectionism threatens their global diversification benefits and "secular growers" show cyclical risk.
- S&P 500 EPS are currently more cyclically peaked than ever due to low financing costs, buyback-fueled growth, and peak stimulus.
- Mean-reversion opportunities have increased as resources and eyeballs allocated to active fundamental investing have dwindled.
- Subramanian suggests selective investment in equities and recommends not buying the crowded market index.
- Three sources of liquidity have dried up: QE, fiscal stimulus, and corporate stimulus.
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