Don't sweat the inverted yield curve
The Federal Reserve is probably not going to be raising interest rates anytime soon. That should be good news for the stock market. But investors still need to prepare for a bumpy road ahead.
Posted — UpdatedSavita Subramanian, the head of US equity and quantitative strategy at Bank of America Merrill Lynch, thinks the market will remain volatile as investors worry about whether the recent inversion of the yield curve is a bad omen for the economy.
An inverted yield curve occurs when short-term rates like the 3-month Treasury move higher than longer-term bond yields, particularly the 10-Year. That often has happened before a recession.
But Subramanian doesn't seem too worried that a major downturn is in the cards. She wrote in a recent report that the lack of any significant inflation, lower interest rates and a healthy job market bodes well for the economy -- and retail stocks in particular.
That's why Subramanian is now recommending that investors buy more consumer discretionary stocks and cut back on more defensive sectors like utilities and health care.
She added that investors should also still look for high quality stocks in the technology, industrial and financial sectors as a way to hedge against any increase in market volatility.
Subramanian will be talking about her outlook with CNN International anchor Zain Asher on the "Markets Now" live show Wednesday at 12:45 pm ET.
"Markets Now" streams live from the New York Stock Exchange every Wednesday at 12:45 p.m. ET. Hosted by CNN's business correspondents, the 15-minute program features incisive commentary from experts.
You can watch "Markets Now" at CNN.com/MarketsNow from your desk or on your phone or tablet. If you can't catch the show live, check out highlights online and through the Markets Now newsletter, delivered to your inbox every afternoon.
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