Bank of America says the S&P 500 bottom for the next 12 months is not in yet

Published Tue, Sep 13 20229:43 AM EDTUpdated Tue, Sep 13 20229:50 AM EDT

It could be a long time before the economy finds its way back to a "normal" inflationary environment, and while many feel safe with a buy and hold the S & P 500 strategy, even that may be too dangerous right now in the short term, according to Savita Subramanian. On Tuesday morning the Bureau of Labor Statistics reported that inflation rose more than expected in August as rising shelter and food costs offset a drop in gas prices. Subramanian, head of U.S. equity and quantitative strategy at Bank of America Securities, said while waiting for inflation to come down, "the worst thing to own is the S & P 500 wholesale" and that there are better places to find opportunity in the current environment. "If you've got a 10 year time horizon, hold the S & P 500 and watch and wait, returns are probably going to be in the mid single digits for the next 10 years," she said on CNBC's "Squawk Box" Tuesday. "But if you're thinking about what's going to happen between now and the next 12 months, I don't think the bottom is in." Instead, investors should look to sectors, she said, particularly those that are pricing in a worse recessionary scenario than "what we're likely to get" and areas like energy, healthcare and "select" industrials that will continue to benefit from high and sticky inflation. She added that she wouldn't own tech for the "foreseeable future" because high-growth stocks could continue to be hurt by rising yields. "The best places to be within the industrial complex are some of the automation plays… that's where companies are spending money as labor inflation has started to rear its head," she said. "As we've seen companies bring back jobs to the U.S., they're actually incented to automate more of the processes than they were when they could just offshore and pay for super cheap labor in other parts of the globe." She also noted that inflation dispersion, the difference in various types of inflation, is "the widest we've ever seen." "Food and rent are doing one thing, whereas oil and wages are doing another thing. It's an environment where you really have to pick your spots, and think hard about what you want to own." —CNBC's Jeff Cox contributed reporting.