BofA’s Subramanian Echoes Yogi Berra’s Advice of Avoiding Crowds

(Bloomberg) — Yogi Berra once said of a restaurant that “no one goes there anymore. It’s too crowded.” Bank of America Corp. strategist Savita Subramanian has a similar warning for stock investors.

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“Everybody is using muscle memory to go back into what they think of as the safest equity market, which is the S&P 500,” the firm’s head of US equity and quantitative strategy told Bloomberg Television’s The Open on Wednesday. “The trouble is if everybody is in the S&P 500 and selling at the same time, the S&P isn’t really that safe. The S&P 500 is the most crowded ticker in the world and it’s time to go into other benchmarks, like small caps.”

Subramanian, who predicted a likely downturn in stocks that came to pass last year, is now more constructive on US equities — if investors pick carefully.

Small caps “is an area where you can get exposure to equities without the risk of everybody being crowded into the same index fund,” she said.

She recommends the energy, financials and industrials sectors, while saying investors should avoid big tech, part of her concern about investors being overweight in the S&P. Both the S&P 500 index and the S&P Small Cap 600 Index are up about 2% in the last three months.

Most Wall Street forecasts anticipate a recession in 2023 and at a minimum slower growth, which has led to assessments for stocks to decline.

But Bank of America’s contrarian indicator that aggregates Wall Street strategists’ allocation views is the nearest it’s been to flashing a “buy” signal on US equities since 2017. Its sell-side indicator fell 33 basis points to 53% in December, 1.5 percentage points away from a level that’s historically associated with a good buying opportunity.

“When strategists are recommending a big overweight in equities, that’s precisely the time you want to sell,” she said. “When they’re starting to drop that allocation and up allocations toward cash and bonds, that’s precisely when you want to buy.”

Berra, the Hall of Fame Yankees catcher, also said, “You don’t have to swing hard to hit a home run. If you got the timing, it’ll go.”

Read more: BofA’s Subramanian Says Active Managers to Lead the Way in 2023