Bank of America’s Savita Subramanian said investors are neglecting this one corner of the market with upside potential: “old school capex.” Investors are navigating what appears to be an increasingly challenging market. On Friday, the S & P 500 posted its worst week since April as investors rotated into small-cap stocks from big-cap tech on hopes of an improving interest rate and inflation outlook. Subramanian anticipates stocks can still go higher from here, on balance. But the head of U.S. equity and quantitative strategy expects that investors will have to pick their positions carefully from here, especially over the near term as she expects a more volatile market for tech stocks. “My conviction in the index level itself is not as high. We’re not as bullish as we were at the beginning of the year because a lot of bears have capitulated, and we’ve also seen the market move significantly higher led by, again, a narrow cohort,” Subramanian told CNBC’s “Squawk on the Street” on Tuesday. “So, I think from here it broadens out, but what worries me is if big-cap tech doesn’t hold up from here, we might not see as strong of gains in the overall benchmark,” Subramanian added. Instead of big-cap tech, the strategist favors what she calls “old school capex,” stocks that have yet to price in any gains from artificial intelligence, as well as from the nearshoring trend. “Our view is that there is probably more upside elsewhere in the market, which is why we like old school capex, and we don’t think that’s getting a lot of attention,” Subramanian said. “The growth isn’t necessarily priced in in those cohorts, but I do see a strong infrastructure spending cycle coming up that’s almost mandatory rather than nice to do. So, that’s where we really see the strength in the market,” Subramanian added. The strategist expects these companies in the industrials, materials and energy sectors are set to benefit, given the infrastructure spending needed to support and power AI chips. “So, that’s where we’re going to see some stronger gains, some more money spent, and when you look at industrials, at some of these traditional old school capex plays, they’re not pricing in as much good news as AI and megacap tech,” Subramanian said.
