The Federal Reserve recently announced that it will leave interest rates unchanged in July but Chair Jerome Powell said a cut could be on the table for September.
Wells Fargo Investment Institute global investment strategist Veronica Willis joins Wealth! to give insight into the current economic landscape and what investors need to know when updating their portfolios in this rate environment.
Willis outlines some sectors that may be favorable after the next rate cut: "Right now we've recently moved favorable on the financial sector. That's one sector that is really going to benefit once the Fed starts to cut rates. So getting in at this point now before the Fed starts to cut is a really good opportunity, a really good play. We think that, financials can do well over the next 6 to 12 months or so. We also really like, you know the energy materials industrials and healthcare sectors. We think during an economic slowdown those sectors are going to be positioned well."
Let's get to it. Markets pairing back some of the earlier gains after soft manufacturing data prompted concerns about the economy. Here to discuss the markets and what sectors make the best investments right now. We've got Veronica Willis, who is the Wells Fargo Investment Institute Global Investment strategist. Veronica, great to see you as always here. First and foremost, let's just start with some of the economic data readings that we've had come in and what it's telling us about the state of the economy right now, especially going into September where we're anticipating that the Fed may finally cut rates.
I think, you know, what we're seeing with economic data right now, signs of a slowing economy, signs of a labor market that's normalizing. We've had a really robust labor market over the past couple of years and these most recent readings are all showing that, you know, that market is starting to get to more of those normal conditions, uh, that we were seeing pre-2020, but not something terribly concerning, um, or a weak labor market by any means.
So with that in mind, what is the investment positioning that those out there who are trying to figure out how they should best be positioning their portfolio or what the playbook is for a potential rate cut?
Yeah, so, you know, right now, we've recently moved favorable on the financial sector. That's one sector that is really going to benefit once the Fed starts to to cut rates. So getting in at this point now before the Fed starts to cut is a really good opportunity, a really good play. Um, we think that, you know, financials can do well over the next six to 12 months or so. Uh, we also really like, you know, the energy, materials, industrials, and healthcare sectors. Uh, we think during an economic slowdown, those sectors are going to be positioned well. Um, and they're at some attractive valuations now. So maybe rotating out of some of the sectors that have really done well, that maybe you're overexposed into some of these other sectors that we favor could be a great idea.
You know, even within this, and and we're taking a look at some of those sectors that you mentioned here on the screen. Um, and I'm zeroing in right now on XLK. Right now, that's down by about 1.7% on today's activity. Of course, technology has been one of the kind of core focal points over the course of the trade the last 18 months or so, especially with AI being a theme that's just been off into the races here. I would love to get your evaluation of that, considering the run runway that we've seen already, and and what type of runway has left perhaps.
Yeah, the tech sector has done really well. It's been really impressive. Uh, but valuations are getting high. They've been high for a while now. And so we're not recommending overweighting that sector at all. We are neutral on the tech sector. And I think what's key to to remember there is how large tech of a sector is. If you're thinking about something like the S&P 500. So even a neutral full exposure to that tech sector, you're going to participate when tech is doing really well, like it has been, um, in recent years.
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This post was written by Nicholas Jacobino