Transcript:Caroline WoodsIt’s a shortened trading week on Wall Street. Joining us now to preview what to expect is Matt Stucky, vice president chief portfolio manager of equities at Northwestern Mutual. Matt, thanks so much for joining us.

Matt StuckyWell good morning. Thanks for having me, Caroline.

Caroline WoodsSo Matt, let’s start with your view on the market. It’s really sending mixed signals right now. The Dow is near highs although has already erased early gains. Tech is wobbling. Money is rotating. What’s the story beneath the surface right now.

Matt StuckyWell underneath the surface there is a lot of rotation happening within the market. Certainly technology being the forefront of that. Being the leader in 2023, 2024 and most of 2025. But as the economy has started to show signs of broadening out, you’re seeing other asset class leadership within markets underneath the surface. And so things like industrials are doing quite well.

Matt StuckySmall cap stocks doing pretty well. And it’s leading to investors to contemplate you know what’s what’s changing underneath the surface. And I think if we’re taking a step back and looking at the driver of that, it’s really the interest rate environment is shifting. You know we’re in the in the rearview mirror. We have a few, federal rate cuts.

Matt StuckyAnd the prospect of additional cuts in 2026 looks promising. And so companies that were harmed by interest rates moving higher, from 2022 through 2024, are starting to see the benefits of a more favorable interest rate environment specific. Specifically, I would say, you know, small cap stocks being the forefront of that benefit. So that’s causing some some rotation just from a macroeconomic perspective.

Matt StuckyBut additionally, you know, investors are having heightened anxiety about kind of what’s happening in terms of the potential disruption from artificial intelligence. And when you’re looking at the S&P 500 specifically, it’s a concentrated index. And so the the the amount of volatility underneath the surface I think is magnified because of that. And look no further than technology stocks.

Matt StuckyIt’s kind of being kind of where that disruption anxiety is is most heightened at the moment.

Caroline WoodsOkay. So let’s break that all down. As you said we’re seeing money rotate into small and mid-caps. Is that healthy broadening or is it the early stages of leadership cracking?

Matt StuckyThat’s a really good question. I think it’s healthy broadening at this point. You know, the more that we see additional breadth, participation and ongoing uptrends in different segments of the market, the healthier the market is. And, you know, just to take a step back and look at kind of how narrow the market was over the last few years, between 20 or 30% of S&P 500 companies outperform the S&P 500 in 2023 through 2025.

Matt StuckyThat’s historically narrow. Typically, you know, the ranges between 40 and 50%. If you go back from, late fall through the end of January, that percentage ticked up to almost 60%. And so that broadening out, from my perspective, is a healthy sign. The question is, is does it leave, you know, some risk from, from an ongoing perspective to some of the way year components of the S&P 500 names that potentially could either benefit or be harmed from the adoption of artificial intelligence.

Matt StuckyWe’ll have to wait and see on that. But certainly if we’re looking at, the overall kind of context of kind of what’s moving higher and what’s what’s dragging lower, there is more positives and negatives. It’s just those chunkier pieces are causing a lot of volatility underneath the surface of the market.

Caroline WoodsOkay. So still a question mark around tech. But you mentioned industrials. We’ve also seen a lot of strength in energy materials staples. Will that leadership continue. Do you think or do you think those are just temporary hiding spots for kind of this nervous money right now?

Matt StuckyI think it’s natural to see some of those defensive parts of the market, namely consumer staples, health care, potentially getting a bid just from a flight to safety dynamic. As money rotates away from the concentrated profile of the S&P 500 to more defensive parts of the market. You know, certainly still in the S&P 500 for a lot of those components, but much smaller in terms of their weight today than just a few years ago.

Matt StuckyI think if you’re looking forward and saying, okay, what what would keep this rotation intact? There’s a few things. One is we need to continue to see earnings revisions up and to the right for those segments of the market that you really haven’t been, you know, leading the market higher. If you’re looking over the last few years that did change back in mid May of 2025.

Matt StuckyYou start to see finally the fundamental strength of things like small caps, Mid-caps equal weight, S&P start to rise in terms of earnings expectations. It’s no longer just the only source of earnings growth is technology. And really kind of being the driver there of the concentrated return profile we’ve seen for the last few years. So for this to continue, you need to see continued earnings revisions up into the right, for those other segments of the market that are currently leading, and we’re starting to continue to see that we’re just kind of finishing up earnings season in the fourth quarter.

Matt StuckyAnd it was, you know, fairly healthy, you know, top line growth, healthy. And, you know, bottom line growth, you know, north of 12% or so kind of building on the strength that you saw in the second in the third quarter. But but again, just to underline the point, you know, it’s been a broader story in terms of where that earnings growth is coming from versus just a narrow subset of the market.

Caroline WoodsOkay. So as chief portfolio manager, I’m curious about what you’re doing with your portfolios. Are you getting defensive right here. Like we’re seeing that the broader market do or are you staying the course with growth.

Matt StuckyYou know, we’re not changing our process just in terms of how we select securities. We actually tend to run our portfolios fairly sector neutral relative to the benchmarks we’re, we’re managing against. And so, you know, we don’t really tend to pick spots if we’re going to get more defensive by loading up in staples or more aggressive by loading up in tech.

Matt StuckyWhat we’re really looking to maximize is, within each sector. What are we getting in terms of the price for paying us? So, you know, there’s a relative value component to what we look for. There’s an ongoing business momentum and quality component that we’re always looking to maximize. And right now I would say if you’re looking for different areas of opportunity, there are just more attractive securities across every every sector of the market.

Matt StuckyAgain, because the fundamentals are starting to inflect across broader segments of the economy. And that means if you’re a portfolio manager, it’s more of a target rich environment. If you look at different, different sectors of your of the portfolio versus, you know, just really seeing that attractive fundamental story within technology, which I would say continues to be the case.

Matt StuckyBut there’s it’s just not the only story in town, which is just kind of leading on to this additional rotation. And so to me, it’s a it’s a, a more optimistic tone. I would say, in terms of looking at the portfolio today and seeing kind of more attractive stories in different segments, of the economy and different segments of the market.

Matt StuckyBut, you know, nothing changing in terms of the ongoing philosophy of power managing money.

Caroline WoodsOkay. So tell me about some of those attractive opportunities that you’re finding right now in terms of individual names.

Matt StuckyWell, I think, taking a longer term view right now, as there’s a lot of knee jerk AI disruption concerns that are out there, I think it’s really interesting to look at financials. At the current moment, you know, this is a highly regulated industry in terms of, the regulatory bodies, underlying who, who can do business with who and ongoing kind of capital ratios and things of that nature.

Matt StuckyAnd so if you’re looking at who’s likely to be a more of a beneficiary of artificial intelligence in terms of productivity versus more of a potential disrupted entity, I would think financials are more insulated from that risk versus other, other, segments. And so specifically, if you’re looking at the banks, you know, right now there’s a really strong, story going on in terms of the capital market cycle.

Matt StuckyAnd, you know, some of those fee based businesses for large money centers. But additionally, if you’re looking at the productivity side, you know, artificial intelligence is good at a few things. If it if it’s able to, get to the right answer on repeated tasks, there’s enough context window we can start to replicate a lot of back office, techno, back office, workflows through artificial intelligence and create kind of more efficiencies in terms of those businesses.

Matt StuckyWithin the financial services area. And so to me, I think that’s a good cost savings and a productivity enhancement to, you know, generating higher returns on tangible equity for a lot of, financial institutions that are out there. At least that opportunity said to me seems, seems pretty strong relative to the risk of disruption. And so those areas to me, within within the financial services arena, to me, you know, maybe push back a little bit on some of the lowered sentiment that we saw last week in that space.

Caroline WoodsOkay, so speaking of financials, I see JP Morgan, Goldman Sachs, I see Capital One as some of your top holdings. But if I take a look at that list I see Nvidia, Microsoft, alphabet, Apple, Amazon meta. So would you classify those as holds right now or would you advise people to to buy these dips that we’ve been seeing because all of the Mag seven are negative so far in 2026?

Matt StuckyYeah. You know, it’s really interesting. You know, we’ve seen a good amount of multiple compression in the Mac. Seven names, to start this year. You know, it could be fears about, potential disruption risks. It could be fears that these companies are spending too much money. It could be a combination of those things. And, you know, I think if you look at, you know, the results of an Amazon or a Google specifically, you know, those those concerns are about more of the are we spending too much?

Matt StuckyBut if you look at what they’ve been saying the last three quarters, it’s it’s they’re continually trying to catch up to kind of where their demand profile is within their cloud computing businesses relative to the resources they have stacked, within those businesses. And so, to me, when I see, you know, a headline from Amazon or a headline Google in the latest earnings reports, they’re going to really be aggressive in terms of capital spending.

Matt StuckyTo me, I think they’re pressing their advantage in terms of their ability to procure compute resources over the next 12 months relative to the rest of the competition, and then to profitably, put those, put that capacity in place to sell out and grow their businesses. To me, I think it’s an attractive investment if you if you’re in the C-suite of those businesses.

Matt StuckyNow, the caveat to that is that, you know, this elevated CapEx profile. So even though they can afford to pay them through cash flow, are going to, require them to potentially maybe lower shareholder distributions in the form of buybacks, or at least water them down a little bit in 2026. But to me, if you’re a longer term shareholder, I’d rather them reinvest in their business and grow those businesses, because the ROI on that level of investment is more attractive than, you know, just simply doing a share buyback.

Matt StuckyYou know, the other names that you mentioned specifically, you know, Capital One, Goldman Sachs, JP Morgan, to me, you know, we talked about how, you know, the cost, the cost takeout potential of artificial intelligence, is more of a benefit, in my view, versus, you know, the potential disruption risk. I think that’s true. And, and, you know, if we’re looking at those names specifically, you’re always going to be concerned about, you know, a credit cycle, but we’re just not seeing that data.

Matt StuckyAnd with some, you know, fairly, fairly, I would say steady credit performance, you know, that area of risk relative to kind of the, the risks of financials that you typically think about to me seems, you know, fairly benign at this point. So, you know, to me, I think you got to go case by case with each one of these holdings in terms of, you know, how how the market environments treating these names.

Matt StuckyBut to me, you know, there’s a lot of optimism. I would say it was still having all those positions.

Caroline WoodsOkay, Matt, we’re just about done with the interview. But before we actually let you go, we want to do a rapid fire game of this or that. This is your first time playing with us. So just so you know, quick answers. Otherwise I’m going to cut you off. Are you ready to play?

Matt StuckyLet’s do it.

Caroline WoodsAll right. Overweight or underweight tech.

Matt StuckyI would go slightly overweight. Leaning into a little bit of the, a little bit of the negative sentiment here.

Caroline WoodsOkay. Mag seven or broader tech.

Matt StuckyBroader tech. I think concentration to me, I think is, is is a little bit where you want to push back against.

Caroline WoodsOkay, we’re keeping these quick software or semis.

Matt StuckyContinuing with semis.

Caroline WoodsSemis are cybersecurity.

Matt StuckyStill semis not.

Caroline WoodsAffected by the dip or wait for confirmation?

Matt StuckyWait for confirmation.

Caroline WoodsBroadening it out. Small caps or mega caps.

Matt StuckyOr small caps?

Caroline WoodsU.S. or international? International quality or momentum?

Matt StuckyQuality.

Caroline WoodsBuy and hold the S&P or selective stock picking.

Matt StuckyBuy and hold. At this point.

Caroline WoodsIn income focus or growth focus.

Matt StuckyIncome.

Caroline WoodsCash on the sidelines or fully invested. Fully invested consumer staples or discretionary.

Matt StuckyDiscretionary.

Caroline WoodsIt’s That being said, Walmart on tap to report earnings this week. Walmart or Target?

Matt StuckyWalmart. But that one you got to twist my arm okay.

Caroline WoodsWalmart or Costco? Costco both top picks JP Morgan or Goldman Sachs JP. Other top picks Visa or Capital One cap one, capital one or Mastercard? Capital one gold or silver?

Matt StuckyGold.

Caroline WoodsGold or Bitcoin?

Matt StuckyGold.

Caroline WoodsOne sentence to describe how you’re feeling about the current market.

Matt StuckyFor the optimistic.

Caroline WoodsSo by year end, this is a market that will be higher or lower than where we are now.

Matt StuckyHigher.

Caroline WoodsSingle digit returns. Double digit returns. What do you think?

Matt StuckySingle digit.

Caroline WoodsAll right. We’ll leave it there Matt Stucky, really appreciate you joining us. Thanks so much.

Matt StuckyThanks for having me.

Caroline WoodsThat’s Matt Stucky Vice president, chief portfolio manager, equities at Northwestern Mutual.