08.11.2011
By Terry Flanagan

Market Rally Ahead?

“We’ve reached a market bottom,” said Terry Morris, senior vice president, and senior equity manager at National Penn Trust Company, a Pennsylvania- based firm with approximately 35 billion under management.

As the Volatility Index (VIX) shoots up 25 percent midday on the August 10 trading day, coupled with a plunge of 400 plus points in the Dow Jones Industrial Average, investors cling to fear, seeing previous gains erased and markets begin play “underperformance” on repeat.

Yet, too much fear has created an “oversold” market, according to Morris, who has made no changes to his equity portfolio in response to the week’s plummeting markets.

“I made changes to my portfolio a month or two ago because my model told me I needed to increase my weight in certain area, not because of the downdraft of the market,” Morris said. His current holdings include emphasis on consumer staples, healthcare and technology. The former two sectors are typically “stable earnings growers”, in a down market, he said.

Morris’s portfolio was already underweight financials and energy, which has helped him navigate the current turmoil.

“The volatility in the markets has made investors very nervous, and they’ve gone defensive,” Morris noted. “But ultimately, that’s what creates opportunities. It’s a good entry point into the market right now.”

Morris expects the markets to turn up in two or three weeks.

“We may see a rotation of leadership in equities—from cyclical to stable companies. Until recently, mid and small cap have outperformed large cap, but that’s been reversed in the down draft. There are a lot of quality big name companies that are large cap and they’ll lead the way back up,” he told Markets Media.

Mutual funds are also in a better place than some may have imagined. According to Morris, who runs a mutual fund at National Penn, there have been “net deposits.” “There’s a lot of cash coming in; I haven’t had to go out and raise money.”

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