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Why this could be just the beginning of the bull market: BoA Merrill Lynch

Nicole Sinclair
Markets Correspondent

Equities closed lower last week, breaking a streak of six consecutive weekly increases. Worries over the impending interest rate increase, a further slump in commodities and more signs of slowing global growth all contributed to the downdraft in stocks. Savita Subramanian, head of U.S. equity and quantitative strategy at Bank of America, joined Yahoo Finance to talk about what she sees for the end of 2015 and in the new year ahead.

Despite recent market volatility, the S&P 500 (^GSPC) stands near all-time highs, but Subramanian says we are not yet in the late cycle of economic recovery.  And while Subramanian lowered her year-end target for the index to 2,000 from 2,100 in October, she told Yahoo Finance that she is still positive on stocks for next year.

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"We're actually kind of early or still maybe in the middle innings of a bull market, and we're not near the end as many think," she said

As the markets approach the start of a potential Fed rate-hiking cycle--which many economists now see coming as soon as December—new challenges could arise for income-oriented investors as traditional dividend yielding stocks could see some pressure, said Subramanian.

"Where we think investors want to go now are dividend growth stocks," she said. "These are companies that might not have the highest yields around, but they have the best potential to grow their yields."

Unlike high dividend yielding stocks, which have historically underperformed when rates are rising (as performance is inversely correlated with interest rates), dividend growth names have outperformed and actually are positively correlated with rates, according to Subramanian.

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