When Savita Subramanian, head of US equity strategy at Bank of America, raised her outlook for stocks at the end of last year, there was a lot of skepticism that equities could go any higher. The S&P 500 had already surged on expectations that the Federal Reserve would start cutting rates in 2024. And investors were very excited about AI. Then, in early March, she increased her year-end target for the S&P 500 even further, going from 5,000 to 5,400. Fast forward to the start of April, and the rally has continued even as markets ratcheted down their expectations for rate cuts this year. Of course, there are questions about whether investors are getting ahead of themselves and whether things are starting to feel a little frothy. In this episode, Subramanian explains why she thinks stocks can go up even further from here, how she’s thinking about valuations, and why we shouldn’t be too worried just yet about a repeat of the early 2000s internet bubble. This transcript has been lightly edited for clarity.
Key insights from the pod:
Why has the S&P 500 gone up? — 3:38
Bank of America’s 2024 S&P 500 call — 5:28
Are stock valuations too expensive? — 9:20
Measures of investor sentiment — 12:22
Stocks and the outlook for rates — 17:49
The resilience of stocks so far this year — 21:04
On incorporating big secular shifts like AI — 26:44
The potential return of diversification — 30:59
What would derail the rally? — 24:04
The outlook for earnings — 37:23