You didn’t need to be a gifted tasseographer to read between the lines last week when BofA’s Savita Subramanian called US equities “egregiously expensive” but nevertheless said investors shouldn’t fret because in a “good case” scenario, the S&P could hit 5,500: Her price target for the world’s benchmark risk asset par excellence was going higher. And imminently.
Sure enough, Subramanian’s year-end projection is now 5,400. “The revised target acknowledges the mix shift of the S&P and surprising margin resilience amid dramatic step function changes in rates and inflation,” the bank said.
The “mix shift” bit was an allusion to Subramanian’s contention that comparing today’s S&P to yesteryear’s index is apples to oranges, as summarized in the linked article above.
It wasn’t all good news from Subramanian. The odds of a minor correction in the near-term are elevated, she said, noting that 5% pullbacks generally happen three times per year, and 10% pullbacks (official “corrections”) once. Recall that the S&P has had just three down days of 1% or more since late October, when the melt-up began.
Solid Q4 earnings “plus no cuts to the consensus 2024 outlook are positives,” Subramanian said, before cautioning that “the era of lower quality growth where cheap capital and globalization contributed to margins is over.” This, she went on, is the era of “sustainable efficiency and productivity gains supported by automation and AI.”
How notable this is depends on how much figurative and literal stock you put in sell-side year-end SPX targets. Over the weekend, one excitable member of the finance-focused social media community waved screenshots of Subramanian’s note around like he’d discovered the blueprints to a time machine. I’m not sure it’s that big of a deal, to put it politely. 5,400 is indicative of just ~5% upside from current levels. We could be there in a matter of days. Or, if something goes terribly wrong, we might never get there. Who knows. What we do know is that Subramanian’s a big name, and her new target piles more pressure on top-down strategists clinging to year-end SPX targets indicative of a major selloff.
Meanwhile, US equity-focused ETFs and mutual funds dominated the equity fund flows landscape over the latest weekly reporting period.
The $11.3 billion haul was the third consecutive sizable influx and brought YTD inflows to $24.2 billion.
Japanese equities saw a seventh straight weekly inflow, European shares a ninth straight outflow. Notably, emerging market-focused stock funds saw their first outflow in months.
Elsewhere, global money market funds are on track for $1.4 trillion of inflows this year after another big weekly haul.
IG credit funds took in another $7.5 billion. Recall from the latest Weekly that the primary market’s booming — high grade borrowers tapped investors for almost $400 billion over the first two months of 2024, the largest two-month IG supply in history.
At the current pace, IG funds would take in $500 billion in 2024, a record by a country mile (see the figure on the left, above, from BofA’s Michael Hartnett).
Tech funds, bolstered by the AI fever dream, are on pace for nearly $100 billion of inflows this year following a $4.7 billion weekly influx, the largest in nearly seven months.
