BMO's Belsky says he remains bullish on US stocks despite recent volatility

Investing.com -- Brian Belsky, Chief Investment Strategist at BMO Capital Markets, reaffirmed his bullish stance on US equities despite recent volatility.

The S&P 500 has faced losses in four of the past five weeks, driven by stronger-than-expected economic data that has dampened expectations for Federal Reserve rate cuts, leading to a sharp increase in bond yields.

Nevertheless, Belsky remains confident in its bullish 2025 outlook for US equities, emphasizing that there have been no “material changes in the fundamental backdrop of US equities yet to suggest there is significant trouble on the horizon.”

As such, the investment banking firm reiterated its S&P 500 year-end 2025 target of 6,700.

Belsky highlights that while bouts of volatility are likely to persist, strategies emphasizing discipline and perspective will be critical for navigating the current environment. To this end, Belsky is advocating for dividend growth as a key investment strategy.

“Our work shows that a strategy focused on dividend growth stocks has outperformed in a variety of market environments and can benefit those investors looking to protect portfolios, as well as those investors looking to bolster performance,” he noted.

Dividend growth stocks are especially attractive given their historical resilience during periods of rising interest rates. BMO’s analysis indicates that during eight periods since 1990 when the US 10-year Treasury yield rose for over a year, dividend growth strategies outperformed the S&P 500 by an average of 5.4 percentage points.

Belsky explains that dividend growth stocks are not only effective at mitigating losses during volatility but also excel during periods of market strength.

Analyzing rolling one-year returns since 1990, the strategist found that in instances where the S&P 500 gained 10% or more, dividend growth stocks outperformed the broader market by an average of 4.4 percentage points.

“This is particularly important because our analysis suggests that dividend growth may be well-suited for both our near-term (pockets of volatility with fits & starts) and longer-term (second half of secular bull) market outlook,” Belsky said.

Moreover, the fundamentals of dividend growth stocks further bolster their attractiveness. BMO points out that companies maintaining or increasing dividends during challenging periods exemplify stability.

In addition, the yield advantage of dividend growth stocks relative to the S&P 500 has been expanding and now surpasses historical averages dating back to 1990.

From a valuation perspective, these stocks trade at a 10% discount to their historical price-to-earnings ratio relative to the S&P 500, while their dividend-per-share (DPS) growth projections are set to exceed the broader market over the next two years.

Source: Investing.com