Investors expecting 'constant bailout' from the Fed may be disappointed in 2021, BofA's top stock strategist says
Brendan McDermid/Reuters
- Bank of America's Savita Subramanian told CNBC on Tuesday it's unlikely the US will see a "really strong" fiscal stimulus package next year due to gridlock in Washington.
- "The market is expecting this constant bailout, from fiscal, from the Fed," the head of US equity and quantitative strategy said.
- The strategist also said that the benefits of an economic recovery are already mostly priced into stocks, and the risks to the market are now "skewed to the downside."
- Her 2021 year-end price target for the S&P 500 is 3,800, a 3% upside from current levels.
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The stock market's dependency on fiscal and monetary support may be challenged in 2021, according to Bank of America's Savita Subramanian.
The head of US equity and quantitative Strategy told CNBC on Tuesday that it's unlikely the US will see a "really strong" fiscal stimulus package passed next year, particularly because of gridlock in Washington. Investors anticipating a strong boost to markets from the aid package and subsequent fiscal support in the years to come may be disappointed, she added.
"The market is expecting this constant bailout from fiscal, from the Fed," Subramanian said. "And it's going to be harder to get anything done in Washington over the next few months and over the next couple of years if we have continued gridlock."
"The idea that the market has grown dependent on this stimulus machine-that's going to be challenged as we move into 2021," she added.
The strategist also said that the benefits of an economic recovery are largely already priced into stocks, and the risks to the market are now "skewed to the downside." In addition to smaller-than-expected fiscal support, difficulty with the coronavirus vaccine rollout could be another risk for stocks, said Subramanian.
Her 2021 year-end price target for the S&P 500 is 3,800, a 3% upside from current levels and one of the lower Street targets. Subramanian is not as bullish on the pent-up demand-fueled economic boom that some investors are predicting will come with the deployment of the vaccine in 2021. She added that there's already been stimulus and corporate firing freezes that have propped up the consumer in 2020, leaving little further room to gain for the market.
"There's been a lot of sources of bolstering consumer demand this year that haven't necessarily been the case in prior recessions, so the idea of moving into next year with a lot of pent up consumer demand is harder to argue for," Subramanian said.