CNBC's No. 1 financial advisor shares the secret for navigating a 'highly unusual' market

More than a year of recessionary forecasts have created “a highly unusual market,” said Mason King, a principal of Luther King Capital Management in Fort Worth, Texas, which ranked No. 1 on CNBC’s list of the top 100 financial advisors in the U.S. for 2023.

As a whole, the current climate has created as diverse an outlook as we’ve ever seen, he noted, even according to his father — J. Luther King Jr. — who has been in the business for 60 years.

Although some experts have more recently backed off those earlier predictions of an impending recession and embraced the idea of a soft landing, “that’s been the most consensus we’ve seen,” he added.

Recent data is still painting a mixed picture of where the economy is headed, with overall growth holding steady as consumers continue to spend but the labor market beginning to loosen from historically tight conditions.

At the same time, inflation has shown signs of cooling even though it remains well above the level where Federal Reserve policymakers feel comfortable, which has reignited fears that the central bank may have more work ahead.

“What we would like to see is more confidence in the economic outlook,” he said. “That would give us more peace of mind that we’re in more of a bull-market scenario longer term.”

“The counterweight is if the lag effects of monetary restriction start to take a larger bite out of economic activity, you could see a more challenging market,” he added.

For now, King said he remains cautious about predicting where the economy will ultimately settle.

“It takes 12-18 months for a single rate increase to flow through the marketplace, and we are only 15 months into the first rate increase,” he said.

Altogether, Fed officials have raised rates 11 times, pushing the key interest rate to a target range of 5.25% to 5.5%, the highest level in more than 22 years. 

“Exactly how much market activity has already been drained and how much is still ahead of us, nobody knows,” King said.

Still, there is plenty of upside potential for investors, particularly in technology and energy stocks, he added.

But rather than pile on to the “Magnificent Seven” — referring to Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia and Tesla, which accounted for a disproportionate amount of the returns year to date — small- and mid-cap growth companies, which tend to be more cyclical, have attractive valuations and remain at a discount, he said.

“There are some great names to be found with great opportunities ahead.”

Among his top picks are Trimble, Albemarle and Permian Resources. “They are going to continue to move forward and expand and their valuation is still trading a slight discount relative to their peers.”

To navigate the ups and downs, King says, the firm maintains a longer time horizon, just like the companies it invests in. “We manage downside risk through the durability of the companies and their ability to manage during downturns.”

As a general rule, Luther King Capital Management commits to a three- to five-year holding period. “We’re not trying to get a lot of short-term gains,” King said. “That’s our discipline and our philosophy.”

King also credits the firm’s success to practicing what it preaches. “We are our largest client,” he said. “We invest our balance sheet the way we invest for our clients.”

Luther King Capital Management has $25 billion under management and more than 3,000 clients.

Tune in to CNBC’s “The Exchange“ at 1pm ET today to see Mason King of Luther King Capital Management, which earned the top spot on the CNBC FA 100 list for the first time this year.