How to navigate an “unusual” market

More than a year of recession forecasts have created “a highly unusual market,” said Mason King, principal at Luther King Capital Management in Fort Worth, Texas, which is No. 1 on CNBC’s list of the top 100 financial advisors in the U.S. for 2023.

Overall, the current climate has created diverse perspectives like we’ve never seen before, he noted, even according to his father – J. Luther King Jr. – who has been in the business for 60 years.

Although some experts have recently backed off their earlier predictions of an impending recession and embraced the idea of ​​a soft landing, “this was the biggest consensus we’ve ever seen,” he added.

The latest data still paints a mixed picture of economic developments: Overall growth remains stable as consumers continue to spend, but the labor market is beginning to ease from historically tight conditions.

At the same time, inflation has shown signs of cooling, although it is still well above the level that Federal Reserve policymakers find comfortable, rekindling fears that the central bank may still have more work to do.

“What we want is more confidence in the economic outlook,” he said. “That would give us reassurance that we are in more of a bull market scenario in the longer term.”

“The counterbalance is that there could be a more difficult market if the lagging effects of monetary restriction start to have a greater impact on economic activity,” he added.

King said he remains cautious for now in forecasting where the economy will ultimately stabilize.

“It takes 12 to 18 months for a single rate increase to get through the market, and the first rate increase was only 15 months ago,” he said.

In total, Fed officials raised interest rates 11 times, pushing the key interest rate to a target range of 5.25% to 5.5%, the highest level in more than 22 years.

“How much market activity has already declined and how much is still to come, no one knows,” King said.

Still, there is plenty of upside for investors, particularly in technology and energy stocks, he added.

But instead of getting involved with the “Magnificent Seven.” Apple, Amazon, alphabet, Meta, Microsoft, Nvidia And Teslawhich accounted for a disproportionate share of earnings year to date – small and mid-cap growth companies that tend to be more cyclical, have attractive valuations and continue to be at a discount, he said.

“There are some great names with great opportunities ahead of us.”

His top picks include Trimble, Albemarle And Permian resources. “They will continue to move forward and expand and their valuation is still at a slight discount compared to their peers.”