What's so bad about an economy growing better than 2% a quarter to warrant the biggest stock selloff since 2011? It's a question that interests Savita Subramanian of Bank of America and Jonathan Golub of RBC Capital Markets.
U.S. stocks this week joined foundering currencies and equities around the world as the S&P 500 Index tumbled 5.8% and the Dow Jones Industrial Average entered a correction. Until now, stocks had been a pool of tranquility amid a slowdown in China, oil's 60% plunge and geopolitical wrangling in Europe.
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To Ms. Subramanian and Mr. Golub, what torpedoed the market this week may be the same forces that pull it back up. While slowing global growth has investors worried, it's also a reason for optimism about the biggest S&P 500 companies, with the U.S. economy outpacing its peers, according to Ms. Subramanian.
“When Europe and China eclipse the U.S. we chug along, but when they're in a down market, that's when the U.S. really dominates,” Ms. Subramanian, equity strategist at Bank of America, said on Friday. “From a quality perspective, all the boxes are checked off in the U.S. and that becomes more important to investors again.”
Gross domestic product rose at a 2.3% annualized rate in the second quarter, according to Commerce Department data reported on July 30. From the end of 2011 to the end of 2014, a period when the S&P 500 climbed 64%, the economy expanded at a 2.1% clip.
CURRENCY TURMOIL
Losses earlier in the week in American shares were limited as the rout in emerging-market assets deepened, with developing-nation equities sinking to the lowest level since 2009 and currencies from Malaysia to Kazakhstan tumbling. That changed Thursday as the S&P 500 wiped out gains for 2015 as investors sought the safety of gold and Treasuries.
The stocks that have meant the most to U.S. investors have been swept up in the turmoil. Netflix Inc., Facebook Inc., Amazon.com Inc., Google Inc. and Apple Inc. have seen $139 billion in market value erased over two days.
It's those shares investors should turn to now more than ever, according to Mr. Golub.
`INNOVATING'
“The one thing they have in common is none of them need a stronger economy to generate their revenues,” Mr. Golub said. “They're companies that are innovating and taking market share and in a slow global growth environment. Those characteristics are the whole market story.”
The S&P 500 will rally 12% to 2,233 by year-end, according to the average estimate of Wall Street strategists surveyed by Bloomberg. Mr. Golub, who predicts the benchmark will go ever higher than that and land at 2,325, is joined by Thomas Lee, who sees the gauge ending at the same level. Ms. Subramanian has a year-end forecast of 2,200.
“China has been a weak story for a while,” Mr. Lee, managing partner and co-founder of Fundstrat Global Advisors said. “We're getting to the point where the market is going to start looking for the fact that everyone is finished selling. I think that means we're within days of a low.”
