The stock market’s bullish sentiment for the magnificent seven stocks may weaken anytime. When that happens is not predictable.
Investors would want to prepare for rotating out of the seven – Apple (AAPL), Microsoft (MSFT), Alphabet (GOOGL), Amazon (AMZN), Nvidia (NVDA), Meta (META), and Tesla (TSLA). In exchange, they purchase dividend growth stocks, earning income and capital gains.
The 10-year U.S. treasury bond is a useful guide for preparing for the asset class rotation. Yields are getting close to 5.0% again, a level markets did not expect last September.
In Sept. 2024, the Federal Reserve indicated that it preferred to steadily cut interest rates. That changed abruptly in the rest of last quarter. Inflation rates refused to weaken, and jobs grew. The Fed also needs to have a monetary policy that is ready for higher tariffs. It is not likely to cut rates more than twice in 2025.
Dividend Growth Stocks
Investors may consider companies in the defensive industry. This includes General Dynamics (GD), Lockheed Martin (LMT), and RTX (RTX). In the drug sector, Bristol-Myers (BMY), Merck (MRK), Pfizer (PFE), GSK (GSK), and AbbVie (ABBV) are worth considering.
ETFs that offer dividends and growth include that from Schwab (SCHD).
Value stocks in the REIT are not as attractive, nor are drugstore stocks like Walgreens (WBA). They have high risk and minimal upside.
