Savita Subramanian, head of equity strategy at Bank of America, thinks the S&P 500 index will rise 7 percent this year. But oil prices' plunge to 5 ½-year lows Friday could upset the apple cart, she says.
"If oil prices do stay at these levels, that would be a risk," she told The Wall Street Journal
. "The contribution from oil prices to earnings is actually larger than the lift to consumption" created by lower oil prices.
Consumer staples, a few consumer-discretionary stocks, transportation stocks and airlines would benefit from the low oil prices, Subramanian said. "But the positive there is not enough to offset the negative for the other [sectors]."
Still, Subramanian forecasts the S&P 500 will reach 2,200 this year. "It's primarily driven by earnings growth," she said.
She believes the bull market is still intact, but we're more near the end than the beginning.
"There are some reasons that make me believe that we might be in the sixth inning of this bull market rather than the third or fourth. We've gone to fuller [price/earnings] multiples, we've seen growth start to materialize. If companies [continue] spending — they started to in 2014 — that could continue to drive the economy. But that call is harder to make with oil prices as low as they are today."
So what stocks should you invest in?
Subramanian likes industrial and technology stocks. "These are sectors where stocks aren't labeled as safe havens but the reality is that their earnings have been remarkably stable over time. . . . There's this opportunity to buy really cheap but high-quality stocks via large global brands [in] industrials, big-cap technology."
Tom Lee, founder of Fundstrat Global Advisors, is more bullish than Subramanian. He thinks strong economic fundamentals will lift the S&P 500 index to a double-digit increase this year.
But 2015 still may be a year of agitation for investors, as the ascent takes place through expansion of price-earnings (P/E) ratios. "As you move and mature in a bull market, P/E expansion is what takes root," he told CNBC
You may not find that a calming thought, given that the S&P 500 already had a trailing P/E ratio of 19.67 as of Dec. 26, up from 18.98 a year ago, according to Birinyi Associates.
"We are going to be surprised. It is going to be an uncomfortable bull market, but people will need to get used to that," Lee said.
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