Subdued Stock Returns Ahead

This well-known strategist says dividends are a bright spot in an otherwise muted market.

- ANNE KATES SMITH

Savita Subramanian is head of equity and quantitative strategy at BofA Securities.

Kiplinger: Back when everyone was bullish and the market was setting new highs, you had an underwhelming outlook for stocks. How do you think this year will shake out?

Subramanian: It’s going to be a volatile year—oh boy, is it! A lot has happened already. Our year-end target for the S&P 500 is 4600. When we published this in November, we appeared bearish, but that’s essentially bullish from where we are today [4329 on March 4]. But our target could be reached multiple times this year; a straight line to 4600 is not our call. We’ll see big declines and big increases over the year. Based on our economic forecast for interest rates and inflation, fair value for the market is lower than where we are today.

Investors have been focused on geopolitics most recently, but what else do you see driving the market? The market is absorbing the idea that the Federal Reserve is reversing course in terms of providing stimulus from lower interest rates, as well as from its bond-buying program. We’ve also reached peak globalization. Over the past 20 years, there’s been a tremendous expansion of profit margins from lower labor costs, lower raw materials costs and lower taxes realized by moving outside the U.S. Now we’re moving from free trade and open borders to more on-shoring, with companies becoming a little more domestically focused, driven partly by geopolitical friction, partly by the supply-chain risks we saw during the pandemic.