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Tony Roth, chief investment officer for Wilmington Trust Investment Advisors ( MTB ), spoke with Quartz for the latest installment of our “Smart Investing” video series.

Watch the interview above and check out the transcript, which has been lightly edited for length and clarity, below.

ANDY MILLS (AM): Big tech names such as Nvidia and Microsoft have led the market higher over the last couple of years. Do you see that continuing in 2025?

TONY ROTH (TR): Right now, we see a rotation trade into other areas of the market, but I think, longer term, we certainly expect to see those big names continue to grow earnings at a pretty rapid pace. One thing that’s important to keep in mind, though, is that it’s not a monolithic group. So there are some companies that are gonna do a lot better than others. Even within the Magnificent Seven, you’re probably going to see a rotation of some names out of that group and some names into that group.

One of the aspects of what’s happening in the market today that I think is really quite notable is that we’re at new, all-time highs as we sit here. And Nvidia ( NVDA ) is probably about 20% off of its all-time high. Given what we experienced in the first half of the year — where it seemed to be a market driven by a single stock — to be able to say that at this point is pretty remarkable. I think most participants might have felt that it would be hard to get to these levels on the S&P without leadership from Nvidia. And not only have we not had leadership, but it’s actually been going in another direction.

AM: Yeah. So AI is, I think, for most investors, a pretty obvious place where people have been investing. What other sectors are you guys looking at that people should try to get into this year?

TR: Financials have worked pretty well this year — not all equally, again, but if you look, for example, at the big money center banks, they’ve done pretty well. Some of them have done extraordinarily well, like JP Morgan , which is priced at pretty lofty levels now. But overall, right now with rates coming down, if we don’t have a recession, which is our base-case view, that should certainly favor regional banks.

And we think that, for example, also in the financial sector, we like insurance companies, which continue to benefit from these expanded premiums. And I think a lot of the costs are probably going to abate, but the premiums won’t come down as fast. So [insurance companies will] take advantage of that leverage. It’s almost like when oil prices come down but you don’t see the price at the pump come down quite as fast. So I think you’ll see that phenomenon with insurance companies.

And then other areas that we like are discretionary companies within this economy, because we do think the consumer, particularly the higher-end consumer, is in good shape. And beyond that, we’re really focused across all sectors on quality companies — so companies that have attractive debt-to-equity ratios that are not too levered, that have low variability of earnings, that have good management teams, intellectual property, intellectual capital, et cetera. Those kinds of companies should do well in this type of environment.

AM: Now, you mentioned that your firm doesn’t see a recession as a likely scenario going forward. What makes you guys believe that?

TR: I would probably start with the labor market. The labor market is really the foundation for the consumer. So when you look at the labor market, what you see is that jobless claims are at an all-time low actually relative to the overall size of the labor market. And when you look at wages, real wages are not only positive, which we haven’t seen for a long time, but if you look at what we think of as (to get a little wonky) the second derivative, which is where a real wage is going, they’re actually increasing. They’re gaining ground. So when you look at that and you consider that the top three quartiles of the consumer still have excess savings and checking accounts, et cetera, that bodes really well for the economy.

So the labor market is in pretty good shape. It’s not in great shape. It’s not in perfect shape. There are some concerning signals, as well, but that’s part of the normalization process. So the labor market’s in good shape, the consumer’s in good shape, CapEx continues to do well. And typically when you see a recession, there’s usually a catalyst. There’s usually excess investment, or there’s a bubble, a financial bubble, or there may even be an external, if you will, geopolitical or exogenous event. And so we don’t see any of those happening, necessarily.

Sure, that could happen as a result of the election outcome, but there are so many levels of uncertainty with the election right now that we’re not investing for that. We’ll keep a very close eye on that, but right now we’re not tying the election to a recession.

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