Tony Ross, chief investment officer at Wilmington Trust Investment Advisors (MTB), spoke with Quartz on the latest edition of their “Smart Investing” video series.
Watch the interview above and review the transcript below, which has been lightly edited for length and clarity.
Andy Mills (AM): Big tech companies like Nvidia and Microsoft have been driving the market up over the last few years. Do you think this will continue to be the case in 2025?
Tony Ross (TR): We are currently seeing some rotation into other areas of the market, but over the long term, we expect these large companies to continue to grow revenue at a fairly rapid pace. However, the important thing to remember is that this group is not monolithic; there are some companies that are performing much better than others. Even within the Magnificent Seven, we will probably see some rotation out of the group and some into the group.
One of the really remarkable things about what’s happening in the market today is that we’re at an all-time high right now. And Nvidia (NVDA) is probably down about 20% from its all-time high. It’s really remarkable to be able to say that at this point, given our experience earlier this year, where the market seemed to be driven by one stock. I think most participants felt that without Nvidia’s leadership, it would have been hard to get to this level in the S&P. And not only was there no leadership, it’s actually gone in a different direction.
AM: Yeah. I think for most investors, AI is a pretty obvious area that people have been investing in. What are some of the other areas that people should try to get into this year?
TR: The financial sector has done pretty well this year. Again, not all are equal, but if you look at the big money center banks, for example, they’ve done pretty well. There are a few like JP Morgan that are priced pretty high right now and are doing very well. But overall, with interest rates going down, barring a recession (which is our base case view), regional banks should certainly be favored.
And I think that even in the financial sector, for example, they like insurance companies that continue to benefit from the expansion of premiums. A lot of the costs will probably be mitigated, but premiums aren’t going to come down as quickly. So they’re going to leverage that. It’s similar to how prices at the gas station don’t go down as quickly when the price of oil goes down. So I think we’re going to see a similar phenomenon with insurance companies.
And the other area that we like is discretionary companies in this economy because we think the consumer, especially the luxury consumer, is doing well. And we’re really looking at quality companies across all sectors — companies that have attractive leverage ratios, that aren’t overly leveraged, low earnings volatility, great management teams, intellectual property, intellectual capital, etc. — that should do well in this environment.
AM: Now, you said that your company sees a downturn in the future as unlikely. Why do you think that is?
TR: I’d probably start with the labor market. The labor market is really the foundation for consumers. If you look at the labor market, you see that unemployment claims are at an all-time low relative to the size of the overall labor market. If you look at wages, not only are real wages positive, which is something we haven’t seen in a long time, but if you look at the second derivative, which we think of (speaking a little technically) as the trend of real wages, they’re actually rising. They’re gaining momentum. When you look at that, and you consider that the top three quartiles of consumers still have excess savings, checking accounts, etc., this bodes very well for the economy.
The labor market is in pretty good shape. Not in great shape. Not in perfect shape. There are some worrying signs, but that’s part of the normalization process. The labor market is in good shape. The consumer is in good shape. Capital investment continues to be strong. And typically, when we have a recession, there’s usually a catalyst. Usually there’s an overinvestment, or a bubble, a financial bubble, or maybe an external, so to speak, geopolitical or exogenous event. So I don’t necessarily expect any of those to occur.
Of course, that could happen depending on the outcome of the election, but at this point there is so much uncertainty around the election that we are not investing in that. We will be watching that closely, but we are not linking the election to a recession at this point.
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