High stock valuations demand a more nimble approach for investors, according to Matrix Asset Advisors president and chief investment officer David Katz. Asked how he steers between sticking with an expensive market on the one hand, or switching to a value-oriented approach with the other, Katz told CNBC Pro on Monday, “You have to do both.” “We think that the overall stock market can continue to do OK, but we do think that if you have not been in the market, we would not be jumping in with both feet here,” said Katz, who founded Matrix in 1986. Katz is having to navigate the market as stock valuations stand above their average over the past 20 years. The S & P 500 currently trades at a forward price-to-earnings ratio of about 22 times, versus a 20-year historic average of roughly 16 times, according to FactSet data. Megacap technology stocks, fueled by the artificial intelligence trade, have helped the broad market index register gains for the year even against a backdrop of sluggish economic growth and persistent inflation. .SPX YTD mountain The S & P 500 has climbed more than 8% so far in 2025, excluding dividends. Nevertheless, “we do think there are pockets of undervaluation [in the S & P 500] and we think that is the better place to be putting new monies,” he said. “We do expect a rotation [into] some of these undervalued areas.” Corners of the market that have landed on the Matrix radar as being undervalued and potentially poised to gain include healthcare, consumer staples and even small caps, said Katz, noting that all three have underperformed the broad market in 2025. Elsewhere, the New York University MBA is also partial toward financial stocks, including banks, which as a group trailed the S & P 500 by some 1.3 percentage points as of Monday’s close. He said financials could have more room to run. Katz owns big positions in Microsoft , Texas Instruments and JPMorgan Chase , the three largest holdings in the Matrix Advisors Dividend Fund (MADFX) , combined accounting for almost a fifth of its assets. The fund is ahead 10.4% year-to-date, landing it in the 9th percentile of more than 1,100 similarly benchmarked, open end mutual funds, according to Morningstar. MADFX YTD mountain Matrix Advisors Dividend Fund (MADFX) in 2025. Microsoft, Texas Instruments and Qualcomm , the fund’s fourth-largest stock holding, notwithstanding, Katz is more cautious on tech stocks generally. San Diego-based Qualcomm, in particular, has been unduly punished this year, Katz argued, falling nearly 4%. He urges a surgical approach when it comes to investing in artificial intelligence, encouraging investors to be selective and deliberate. “We would not get caught up in believing that because of AI and technology doing so well that valuations are less material or that the S & P 500 should be at a higher valuation – those types of things always come back and bite people,” Katz said.
