Market Volatility Offers Stock Picking Opportunities, Says Wilmington Trust CIO
Amidst market swings reminiscent of the Greek debt crisis, Wilmington Trust CIO Tony Roth sees a silver lining for savvy investors. The recent volatility, which saw the S&P 500 experience its best and worst days since November 2022, presents a unique opportunity for stock picking, Roth argues.
"This stuff does happen in the summer," Roth said, acknowledging the heightened volatility but remaining optimistic. Despite the market scare, he remains firmly in the "soft landing" camp, predicting a continuing growth in the economy. "When you consider the numbers that have come in for the second quarter, much stronger than expected," he said, "we’re going to see the same thing for the third quarter."
Roth highlighted the Atlanta Fed’s third-quarter GDP tracker, currently at 2.8%, as a positive sign. He emphasized the need for differentiation in earnings, focusing on companies demonstrating strong financials, stable profitability, and scale.
"What you want to look for is very much companies that can demonstrate quality in their financials," explained Roth. He sees larger companies with the ability to embrace artificial intelligence as particularly promising. Looking forward, Roth predicts a 10-15% market increase within a year, driven by factors such as the tendency for markets to rally after presidential elections.
While acknowledging the growth of mega-cap tech companies, Roth stresses the importance of distinguishing between individual names. He highlights Microsoft, with its diversified business, strong profitability, and cost control, as a prime example of a company capitalizing on the AI revolution.
"These companies are going to be the rails of the economy for many years," Roth asserts.
His confidence in specific stock selection extends beyond tech giants. "This is very much an environment that I would describe as a stock picker’s market," he said. For Roth, the Fed’s current policy, coupled with a slowing but still growing economy, necessitates a discerning approach.
"We have continually seen over the last year our active managers outperforming our ETFs, our benchmark positions," he said, reinforcing his belief in the value of active management.
With a mix of strategic optimism and cautious observation, Roth offers a compelling roadmap for investors navigating the current market landscape. His insights highlight the potential for strategic stock picking to yield significant returns, echoing the importance of individualized analysis in a dynamic economic environment.
Stocks Bounce Back After Volatile Week: Is It Time to Buy?
After a rollercoaster week that saw the S&P 500 experience its best day since November 2022, followed by one of its worst days in the same period, investors are left wondering if the volatility is over or if it’s an opportunity to pick up some bargain stocks. Wilmington Trust CIO Tony Roth weighs in on the market’s current state and suggests that while the summer tends to bring increased volatility, the economic outlook remains strong, presenting opportunities for savvy investors.
Key Takeaways
- Summer volatility is expected and can be attributed to lower market activity.
- The US economy is still expected to experience a soft landing, with the Atlanta Fed’s GDPNow tracker predicting a 2.8% growth rate in the third quarter.
- The market is presenting opportunities to invest in high-quality companies with strong profitability, low volatility, and scalability.
- Mega cap tech companies with strong earnings growth and diversified businesses remain attractive investment choices due to their role in the AI revolution.
- Active management is back in favor as investors seek out stocks with strong fundamentals to navigate a slowing economy and capitalize on sector specific opportunities.
Navigating the Volatility: A Soft Landing and a Stock Picker’s Market
"This reminds me of the Greek crisis almost a half a decade ago," says Tony Roth, drawing a parallel with the volatility experienced during the summer months. While lower market activity contributes to the fluctuations, Roth assures that the fundamentals for economic growth remain strong, leading his firm to remain in the "soft landing camp".
Despite the recent volatility, Roth emphasizes that the economy is still in a healthy position. He cites the Atlanta Fed’s GDPNow tracker, which predicts a 2.8% growth rate in the third quarter. This, coupled with the stronger-than-expected second-quarter numbers, indicates that the economy is poised for continued growth.
This positive economic backdrop creates an environment where investors can focus on identifying "quality" companies that can navigate the market’s choppiness. Roth advocates for companies exhibiting:
- High Profitability: Consistent and strong profitability is a key indicator of a company’s ability to weather economic storms.
- Low Volatility: Companies with consistent earnings growth and stable performance provide less risk for investors.
- Scale and Growth Potential: Larger companies with established positions have the resources to invest in new technologies and capitalize on emerging growth areas like AI.
Riding the AI Wave with Mega Caps
Roth remains bullish on Mega cap tech companies, highlighting their strong earnings growth driven by both multiple expansion and significant increases in profitability. "You have to make distinctions between those names," he cautions. While some companies like Amazon are heavily reliant on strong sales growth, others like Microsoft are positioned to lead the AI revolution with more diversified businesses.
He emphasizes that Microsoft embodies the "quality" characteristics he seeks in investments, exhibiting repeatable profitability and the ability to control costs. These characteristics, coupled with their significant role in the AI revolution, make them attractive investment choices poised for continued growth in the coming years.
Active Management: Back in the Spotlight
Roth believes that this period of market volatility presents a clear advantage for active managers: "It’s very much an environment that I would describe as a stock picker’s market." He emphasizes that the Federal Reserve’s current stance, with rates estimated to be 300 basis points above their neutral level, will eventually lead to a "rising tide that lifts all boats". This will benefit smaller companies, but the slowing economy will necessitate careful stock selection to capitalize on sector-specific opportunities.
His firm’s experience over the past year demonstrates the effectiveness of active management during times of market volatility. "We have continually seen our active managers outperforming our ETFs and our benchmark positions," says Roth. He predicts that this trend will continue as investors seek out skilled managers who can identify and capitalize on specific opportunities in a dynamic environment.
The current market landscape, marked by volatility but underpinned by strong economic fundamentals, offers investors a unique opportunity to seek out "quality" companies that can deliver long-term growth. Active management emerges as a valuable tool for navigating this environment, allowing investors to leverage the insights and expertise of experienced managers who can identify and capitalize on specific investment opportunities.
