BofA’s Subramanian says bonds in rare competition with stocks

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Photo by Jeenah Moon/Bloomberg via Getty ImagesEquity 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.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountThe risk-return on a 10-year United States Treasury now runs above five per cent, 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 U.S. equity and quantitative strategy, told Bloomberg Television in an interview.This advertisement has not loaded yet, but your article continues below.She said U.S. 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.Canada's best source for investing news, analysis and insight.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Investor will soon be in your inbox.We encountered an issue signing you up. Please try againThat creates a potentially more attractive backdrop for bonds, according to Subramanian, as yields may be unlikely to rise much beyond six per cent-seven per cent. 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 fuelled by a sharp repricing of expectations for U.S. interest rate hikes to contain energy-driven inflation. Tuesday’s rebound in bonds has already fizzled, with 10-year Treasury yields topping 5.30 per cent 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.”We apologize, but this video has failed to load.This advertisement has not loaded yet.Notice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more about cookies here. 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