Nuveen’s CIO Sees Year-End U.S. Stock Rally As Rates Fear Subsides

Saira Malik, chief investment officer of Nuveen, during the Greenwich Economic Forum in Greenwich, Connecticut, US, on Tuesday, Oct. 3, 2023. The conference gathers leaders of the global alternative investment industry.

(Bloomberg) -- US equity investors should expect a year-end rally as rate hikes and bond yields peak, according to Nuveen Asset Management LLC's chief investment officer.

“What you'll get to as we go into year end is your typical Santa Claus rally,” Saira Malik said in an interview on Oct. 30, referring to the tendency of stocks to rise in the trading days around Christmas. “If geopolitical issues don't broaden out to really impact oil prices significantly, then I think markets kind of rally into year end” and 10-year yields flatten out.

The San Francisco-based portfolio manager said she expects the S&P 500 Index to end December at the 4,300 level, taking gains for the year to 12%.

Some of those gains started coming yesterday as concerns about the impact of higher-for-longer interest rates eased, with Federal Reserve Chair Jerome Powell hinting that the US central bank may now be finished with the most aggressive tightening cycle in four decades. The S&P 500 closed 1.1% higher at 4,237.86 after slumping over the past three months.

“A lot of people are sitting in cash waiting for an entry point,” Malik said. “Cash on the sidelines and bearish investor sentiment are actually usually bullish signs.”

Barclays Plc strategist Emmanuel Cau also said the bar was low for a bounce in equity markets on wagers of a peak in rates as well as supportive technical trends and year-end seasonality.

Malik is the lead portfolio manager of the $104 billion College Retirement Equities Fund - Stock Account, which has outperformed nearly 70% of peers over the last 12 months, according to data compiled by Bloomberg. Its top 10 holdings include Microsoft Corp., Apple Inc., Amazon.com Inc. and Nvidia Corp.

Malik prefers technology as a long term investment spurred by tailwinds of an end to rate hikes and moderating inflation, but says investors should be discerning. While companies like Alphabet Inc. and Meta Platforms Inc. will follow the cycle of the economy and the consumer, Microsoft and Amazon are “different animals,” and along with Nvidia will keep a dominant position given their respective investments in artificial intelligence and logistics, Malik said.

Even though she expects a near-term rally, Malik is still neutral on stocks and sees a possible recession later in 2024, or early 2025. Against this backdrop, she also prefers defensive parts of the market like infrastructure and dividend growers.

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