3 Cheap Stock Market Areas to Buy as Fed Unveils ‘Rare Doubling’ of Stimulus, BofA Says

• Investors should get value stocks in three specific sectors, Bank of America said.

• The firm says they are poised to outperform as the Fed cuts rates while corporate profits still accelerate.

• US chief equity strategist Savita Subramanian refers to the situation as a “rare double whammy of stimulus”.

The Federal Reserve typically doesn’t cut rates while corporate profits are still rising. But that’s the situation we’re seeing now, which Bank of America believes creates a unique opportunity for investors.

Savita Subramanian, BofA’s head of US equities and strategy, described the situation as a “rare stimulus double whammy”. And in an appearance on CNBC, she suggested some portfolio tweaks, recommending that investors bring in certain types of value stocks.

Value stocks — or those trading below where fundamentals say they should be — outperform when earnings rise and rates fall as investors become less concerned about hedging and embrace bigger names that have fallen out of favor . That’s happening now, BofA said, meaning cash flows will favor value.

In this context, real estate, financial and energy are three sectors worth watching, she said. These value industries provide quality and income.

The the real estate sector with large capitalization benefits from Wall Street’s massive investment in data centers, a necessary infrastructure component of AI development. Meanwhile, real estate’s exposure to troubled office space isn’t worth worrying about, Subramanian noted.

Meanwhile, Finance they have become a higher quality sector than they were in 2008 and are currently “hungry” for capital. The same can be said about energyshe said.

“These companies have basically been heading for the last decade, and now they’re giving up on free cash flow, focused on cash return. I think those are some of the areas of the market that you really want to press,” Subramanian. said CNBC.

Similarly, Citi’s US equity strategist Scott Chronert also highlighted financials and energy in a Bloomberg interview, calling the latter a “contrarian opportunity.”

In Subramanian’s view, part of the appeal of value sectors is the high dividends they offer.

As the Fed’s tapering cycle drags down short-term yields, money market investors will look for new sources of income. Dividend-producing stocks will benefit from this transition, Subramanian said.

“I’m thinking about where these assets are going in retirement accounts and money market funds; I think they’re going to get safe and steady income. That’s more value than growth,” she said.

The story continues

She has previously noted that dividend yields are particularly attractive in real estate. Since 2008, real estate dividends have doubled the proportion of high-quality market capitalization.

According to BofA’s latest note, neither retail nor institutional investors seem adjusted to the value trend so far, with portfolios leaning more toward long-term growth stocks and defensive exposure.

Hedge funds also appear skeptical of the recent boom in China, which began last week after Beijing pushed through fresh stimulus.

Subramanian expects this to be the start of a longer-term story and suggested investors monitor the materials sector.

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