36 BARRON’S February 8, 2021
Q&A
Adjusting
To the Biden
Market
I
t’s time to buy cyclicals and small-caps. That’s been a
bold call, especially for fund managers who have ac-
quired a “hot-stove mentality” after being burned over
the past 10 years. But this time, says Savita Subrama-
nian, Bank of America’s widely followed strategist,
outperformance could last for years, as it did after the
tech bubble burst. Finding promising investments is
even more important today, especially if the market itself
delivers lackluster returns, as she expects.
A double major in math and philosophy at the Univer-
sity of California, Berkeley, Subramanian is a heavy user
of quant data in her studies of investor sentiment, and has
been chief strategist since 2011. She recently chatted with
Barron’sabout how the Biden administration will achieve
economic growth, and why—despite being the firm’s head
of ESG—she’s recommending energy stocks. Read the fol-
lowing edited excerpts for more.
Barron’s: President Biden has issued dozens of execu-
tive orders. How should investors digest these?
Savita Subramanian:They represent a few thematic
changes and a big break from the market leadership of the
past four years. This administration is less focused on asset
inflation and more on real inflation, in creating jobs and
reinvigorating the real economy, rather than just bolstering
stock market returns. From listening to this new adminis-
tration’s rhetoric, they’re not looking at barometers like the
S&P 500 index or investment returns as a metric of suc-
cess or failure. Instead, they’re focused on addressing some
of the bigger inequities in the market, like income inequal-
ity. That means we’re going to see less-great market re-
turns, but probably a bigger return in the economy overall.
Your market callis pretty tepid.
I’m one of the lowest forecasts on Wall Street. We’re looking
for 3,800 on the S&P 500. It’s a very tech-growth-heavy
benchmark. We’re looking for S&P
earnings to grow by about 20% this
year. Obviously, we’re expecting to see
some multiple compression. We’re
expecting to see a very strong economic
recovery. Our economists Michelle
Meyer and Ethan Harris are looking
for 6% growth on U.S. gross domestic
product. Most of that recovery should
take place in the second half of this
year as we see broad dispersal of vac-
cines and a more concerted, coordi-
nated reopening. It’s hard to be bear-
ish, given all the stimulus.
Here’s why we’re not bearish: Inter-
est rates are superlow, U.S. large-caps
offer great yields, relative to bonds,
and the Biden administration is laser-
focused on the economy. It’s hard to
see a recession-driven bear market.
The market was gripped by the
spectacular rise of GameStop
[ticker: GME]. What does it mean?
We’re seeing more and more of the de-
coupling of fundamentals from perfor-
mance. It’s always troubling to see, and
it smacks ofspeculation. A couple of
things: All of the action seemed to be
focused on the small-cap space. Compa-
nies with high short interest in the S&P
500 behaved normally, but those in the
Russell 2000 behaved very atypically.
The good news is this seems to be local-
ized in smaller-market-cap stocks, so
Photograph byNATHAN BAJAR the impact is less extreme, and it’s em-
By LESLIE P. NORTON
An Interview WithSavita Subramanian,Head of
U.S. Equity & Quantitative Strategy, Bank of America