By Investors are looking forward to a strong year ahead for the broader stock market, but Bank of America’s top US stock strategist says one sector could see a perfect mix of conditions for strong gains.
Savita Subramanian, BofA’s head of US equity strategy, foresees the perfect conditions aligning for cyclical stocks, referring to a handful of sectors in the stock market that tend to outperform when the economy is gaining strength. That includes areas like commodities, construction, and infrastructure, which are bound to see more upside as investors pile into the “old economy,” she said, speaking to CNBC on Monday.
“I think there’s almost a mandatory infrastructure rebuild. Get efficient. I mean, look at all the equipment that companies are using. It’s not efficient. If they replace it, they’ll become that much more efficient. And that involves spending money on old economy,” Subramanian said, adding that the economy has its “ducks in a row” for a fresh spending cycle. “I think all of this is creating the perfect storm for cyclicals to outperform in a really material way over the next several years.”
Subramanian said she is bullish on manufacturing in particular, though activity in the sector has contracted for 24 out of the last 25 months, according to the Institute of Supply Management. She pointed to tailwinds like reshoring, the need to build out the power grid and create new infrastructure, and tech companies looking to invest in artificial intelligence and data center creation.
“They basically told us they’re going to spend a lot of money over the next several years, on not just tech, but power, infrastructure, metals, machinery — that’s huge pickup, I think, in terms of manufacturing dollars spend,” Subramanian said of tech firms that had spoken to Bank of America.
Subramanian is also generally bullish on stocks in 2025. The bank is predicting the S&P 500 could rise another 10% to 6,666 next year.
Morgan Stanley has also issued a bullish call on cyclical stocks, particularly in the financial sector, which has outperformed other areas of the market. The iShares S&P 500 Financials Sector UCITS exchange-traded fund is up 36% for the year, ahead of the benchmark index’s 27% gain.
Hedge funds have also been loading up on cyclical stocks over the third quarter, with a focus on financials, Goldman Sachs said in a note.
