Tags: bank | america | market | decline

Bank of America: Hoard Cash as Market Plunge Looms

hand holding stacks of cash
Yanukit-Sujjariyarux/Dreamstime

Monday, 26 November 2018 08:12 AM

Bank of America Merrill Lynch's Savita Subramanian reportedly predicts the S&P 500 will rise to 3,000 by the end of this year and then will decline to 2,900 next year.

"We believe the peak in equities is likely before the end of 2019," CNBC cited Subramanian, equity and quantitative strategist at Bank of America Merrill Lynch, as recently writing to clients.

"Assuming the market peaks somewhere at or above 3,000, our forecast is for modest downside in 2019," CNBC cited her as saying.

Friday, the S&P 500 fell 0.7 percent to 2,632.56, tumbling into a correction in shortened Black Friday trading as energy companies were battered with oil sliding below $51 a barrel, its lowest in a year, Bloomberg reported.

There is a good chance stocks stall out next year as credit conditions tighten and earnings growth slows, she said.

However, Subramanian says investors can now turn somewhere they have not been able to for a long time as stocks stall out: cash. "There is now an alternative for stocks," Subramanian said, noting yields for cash are higher today than for 60 percent of S&P 500 companies.

"Cash is now competitive and will likely grow more so … our Fed call puts short rates close to 3.5% by the end of 2019, well above the S&P 500's 1.9% dividend yield."

Subramanian recommended investors buy stocks in the health care, technology and financials sectors.

The S&P 500 Index had its worst Thanksgiving week performance since 1939, and is down 10 percent from its September high, the technical definition of a correction. 

The break in petroleum prices only adds to the list of issues investors will be weighing this weekend -- from trade wars to the likelihood of the economic expansion continuing.

“There’s a lot of uncertainty to still churn through,” Noah Weisberger, chief U.S. strategist at AB Bernstein, said on Bloomberg TV. “I’m a little bit surprised, you know, going back to October that its taken the market as long as it has -- it still hasn’t regained its footing.”

Trading was very quiet, with volume more than 30 percent below average over the past 30 days. Stock markets closed early at 1 p.m. in New York. Bond markets shut at 2 p.m.

“It’s a light volume day,” said Chris Zaccarelli chief investment officer at the Independent Advisor Alliance. “I’m not going to read too much into it.”

However, other market experts are much more optimistic.

Wells Fargo & Co. recently urged any investors sitting on cash to jump into the market from the sidelines.

The sell-off that started in October is not the end of the bull market and investors should continue to fight the urge to overreact to negative headlines, wrote Darrell Cronk, president of the bank’s Investment Institute and team, in a recent note to clients, Bloomberg explained.

“We view now as a time to be ready to increase equity exposure in favorable areas, such as U.S. large-cap, U.S. mid-cap and emerging-market equities, and favor deploying cash now or even allocating incrementally over the coming days and weeks,” the strategists said. “Current conditions have the potential to create some of the best entry points into equity markets since the Nov. 2016 elections.”

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Bank of America Merrill Lynch's Savita Subramanian reportedly predicts the S&P 500 will rise to 3,000 by the end of this year and then will decline to 2,900 next year.
bank, america, market, decline
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2018-12-26
Monday, 26 November 2018 08:12 AM
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