- Saira Malik is bullish on the stock market for the final quarter of the year.
- Third-quarter earnings will be a postive catalyst as companies beat expectations, she says.
- But instead of trying to time the market exactly, Malik says investors should consider cheap dividend growers.
The S&P 500 had a strong 2023. It was up more than 10% for the year as of Thursday.
Its profits arrived unexpectedly. Markets were bracing for a recession at the turn of 2023, prompting many to hold cash or hide out in bonds until the hype of artificial intelligence boosted mega-cap technology names, which carried the majority of the index’s gains to date.
“I think people have a bit of FOMO and do want to get back into the markets,” says Saira Malik, chief investment officer at Nuveen, which manages $1.1 trillion in assets.
Investors gradually shifted away from the hard-landing narrative and toward soft-landing expectations, with some expecting strong economic growth in the fourth quarter. Malik is a member of that group.
“With the S&P getting close to 4,200, I’m still more bullish in the shorter term than bearish, which is probably not the consensus view at this point for a number of reasons,” Malik said in an interview.
First, September frightened investors by reversing some of its gains. However, she noted that the month has historically been a bad one for stocks. Things tend to improve by October. And, according to her, the market will return 6% on average during the final quarter of the year 80% of the time.
Second, there is a lot of cash sitting on the sidelines this time around in cash and Treasuries that investors are eager to deploy back into the market.
Third, she noted that the big catalyst will be a strong quarter as earnings season approaches in a few weeks. The consensus estimate for the third quarter has recently been reduced to flat revenue growth and slightly positive earnings growth. However, Malik believes that another quarter of companies exceeding earnings expectations and raising guidance is possible.
How she recommends you invest
Long-term investors typically choose between stocks, bonds, and real estate. However, these asset classes have suffered in recent years, according to Malik. Interest rates have risen dramatically this year, making mortgages more expensive and slowing the housing market.
Investors are increasingly looking for areas of the market that are less correlated with higher rates, and one way to play this is to look at a sector of stocks that isn’t as impacted by macroeconomic trends.
According to Malik, one such area — and one that has recently fallen out of favor — is dividend growers. She describes it as a category that, in 2023, faced competition from the risk-free returns offered by Treasury bonds, but that now appears cheap and pays a nice yield.
Malik provided Insider with five stock names that have consistently increased their dividends over time, indicating that they have strong fundamentals and are economically defensive. She noted that during Covid, they continued to grow their dividends regardless of the macroeconomic environment.
The three stocks listed below are also increasing revenues, earnings, cash flows, and dividends due to fundamentally sound businesses that are less cyclical.
The dividend yield on retailing behemoth Walmart (WMT) is 1.42%.
Motorola Solutions (MSI) is a provider of video and telecommunications equipment, software, systems, and services with a 1.28% annual yield.
And UnitedHealth Group (UNH) has a 1.46% annual yield.
Malik noted that the two stocks below have exposure to secular growth areas that will continue to see investment dollars flow in their favor.
Linde (LIN) is the world’s largest industrial gas company in terms of revenue and market share. It has a 1.38% annual yield.
Eaton Corporation (ETN) is a power management company with a 1.68% annual yield.