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September is traditionally known as a challenging month for stocks and the whipsaw market action so far this week certainly suggesting that that may be set to continue. Add in potential rate cuts and then the November election and it could be tough to figure out exactly how you should arrange your portfolio to set you up for a successful 2025 here. So here to help with some of the tips and guidance. We've got Veronica Willis, who is the Wells Fargo Investment Institute Global investment strategist. Veronica, always a pleasure to grab some time with you here. Okay, so it's like, uh, we're repeating August all over again with some of the early market swings that we've seen to begin the month of September and it's really seeming to be driven by some of the early economic data here. What most notably would you be tracking as it relates to the market volatility or the market whipsaw that we could be set to see with some of this data coming out this week?

Yeah, I think the labor market is going to be what's in focus this week. Uh we saw earlier today with that reaction to the the jolts job openings coming in under consensus. Um we've got plenty of other labor market data for the markets pay attention to this week with that jobs report on Friday. And I think the market has quickly shifted from hyperfocus on inflation to hyperfocus on the labor market. So that's really what's to watch for this week.

And and what specifically would the markets be tracking within that labor market? Is it, is it a continuance of what we'd seen within jolts today where you're seeing a shrinking of some of those openings? And then additionally on the jobless claims, you see jobless claims continue to rise or you see for instance on the employment situation that unemployment rate tick up further here. What what's the most important metric that the markets are really going to snack on?

I think it's going to be that payrolls and the unemployment rate on uh Friday's jobs report. Uh really looking to see if last month is um a signal of what we're going to see going forward. Is that unemployment rate going to continue to tick higher or are we seeing a bit of a normalization in the labor market, expecting some softness there, but um hopeful that we're not going to see anything too concerning with the labor market. Um but if we get a a bad jobs report, I think that's going to be another catalyst for some market volatility.

And and we've seen some rotation, uh especially as we do track the pullbacks in in tech specifically as we were watching that yesterday and then earlier on today even though things have reversed a little bit, you kind of got the sense that if there was some profit taking in tech that that could lead to a broadening elsewhere. Where and which sectors seem most ripe to take in some some inflows or see increased volume as a result of that broadening?

Yeah, so right now we're we're liking some of some cyclical sectors. We like communication services, um industrials, materials, um financials and energy. Um I think those are some of the sectors that can really benefit from that pullback that we've seen in tech. Um because they've also got some exposure to some of those longer term trends uh where we're expecting some growth in the economy. Um particularly in AI, it's not necessarily just a tech trade, but some of these other sectors can really benefit from that.

With that in mind and and we're taking a look at some of these portfolio tips, what what are your tips for investors who are trying to just navigate these next couple months here in September and October ahead of what is another major catalyst event for the markets in the November election?

Yeah, so I think right now focusing on a little bit higher quality in both the fixed income and the equity exposure. So thinking of being invested in large caps over mid and small caps. Um it's probably good for the near term. We're expecting those large cap companies to be a little bit more resilient through all of the economic uncertainties that we have coming up over the next few months. And then in the fixed income space just focusing in on that investment grade over the high yield space, not taking on too much risk as we're expecting that volatility. And then eventually after um you know, the economy has slowed down a little bit and has started to grow into 2025, that's when you can move into some of those higher beta uh riskier areas.

You know, even as we've been talking about the employment side of this, of course in the Fed's dual mandate employment and then inflation as well, and that takes us into the mindset of the consumer. For a consumer that's looking for more discounting, more value hacks as well in their own spending and smart spending habits that we've been trying to put in front of people and bring to their attention as well here. If we do see a continued pressure on the consumer, what does that spell out for companies who might be the most vulnerable and and where could we see that play out in the equities market?

Yeah, I think in the equities market, it's going to hit that small cap space first, which is you know, why we favor large cap over small cap. Those tend to to struggle the most when the consumer starts to to cut back. Um those larger cap companies tend to be a little bit more buffered from that. They tend to have a little bit more cash on the balance sheet and can account for any pullback in the consumer. And so I think that that large cap space is going to be a little bit uh safer through an economic slowdown led by consumer spending less than some of those smaller companies.

Veronica Willis who is the Wells Fargo Investment Institute Global investment strategist here. Veronica, thanks so much for taking the time here with us today.

Thank you.