How tech, software may handle uncertainty in 2024
Recent economic data and the Federal Reserve's headline decision to pause interest rates in December have stocks reacting positively. But will it last and is there uncertainty on the horizon for 2024?
"I would say that at the moment the market environment, the economy, are feeling much more optimistic," Sageview Capital Founding and Managing Partner Scott Stuart tells Yahoo Finance, discussing trends in tech and software that may evade economic or labor market uncertainties.
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Video Transcript
SEANA SMITH: We want to bring in Scott Stewart, Sageview Capital's founding and managing partner here, to weigh in on what we can expect looking ahead to 2024. Scott, it's great to have you here. So let's talk a little bit about the uncertainty that's on your radar. How is that shaping your investment playbook as you look ahead to the new year?
SCOTT STUART: Great. Thanks for having me on. So we are private investors. We try not to focus too much on the macro. But I would say that, at the moment, the market environment, the economy are feeling much more optimistic. The latest report from the Fed, the latest report from a number of Wall Street analysts about expected rate cuts, all of that turns what was a headwind since March of 21, into a tailwind. I would say at our companies, we're starting to see a pickup in business. Our companies are largely software. And we certainly feel like we're bottoming out. And in fact, seeing a pickup in business. So that's our outlook from the ground. It matches, I think, a little bit of what people are saying about the general market and the general economy.
BRAD SMITH: It's interesting, especially because on the business side from the software companies that we've heard from, even earlier this week, it sounded like there was some uncertainty about what that propensity to spend from some of their portfolio clients would look like going into next year. Where are you kind of seeing that net out? And ultimately, how would that pass through to some of the valuations as well?
SCOTT STUART: Well, I would say that software market is not one company, right? So for example we have companies that have a demonstrable return on investment for our customers. They save the companies money. They improve their ESG status. Companies like Drivewise, who help-- who sell software to truckers, so they can bypass weigh stations. That means the trucking companies save a lot on labor and fuel. It's good for the environment. It's good for the bottom line. We have another company called Specright that sells product specification software to big companies, who make things. Once again, that reduces costs and increases their ESG reporting.
So I think businesses like that, even in a tougher environment, are going to do well. Some businesses that are involved in marketing and advertising, and new business, I could see how customers are going to be much more cautious about buying that software.
SEANA SMITH: Scott, talk to us a little bit more about your investment criteria. When you're trying to identify attractive names in this type of current environment, I know you're very company specific, but what is your investment criteria look like as we look ahead to 2024?
SCOTT STUART: Sure. So the first thing I would say is it's great to invest in technology companies because there's really an endless supply of new ideas. We've been riding the software wave since we started our firm. And software is just a great piece of technology that can produce better results at a lower cost. I don't think that wave will slow down at all. I think that's a long term trend, that's here to stay. A lot of those trends will be exacerbated by AI. And while it's early days, we're already seeing, at our companies, that you can employ AI to lower costs. You can replace people, you can generate content more cheaply. So we're already seeing sort of the back office effects. And now, we're turning our attention to what can AI do for companies that are trying to grow faster.
