Palisade Capital Management's CIO Dan Veru said the market showed evidence of being more selective - punishing stocks that missed earnings whilst rewarding those that beat expectations. "The timing of Fed tapering is unclear and a risk to markets is that there are policy mistakes in how it is (executed)" the New Jersey-based fund manager said in a phone interview. "If it's against a strong economic growth backdrop, the market can absorb it. If not, we'll see elevated volatility." Veru helps oversee $4.5 billion in funds.

He said the early stages of a pick-up in the M&A cycle and strengthening economic backdrop would benefit stocks such as Lazard (LAZ) and Raymond James Financial (RJF). 

Russell Investments chief market strategist Stephen Wood is also optimistic, pointing to a broad-based rally in small caps which had alternated between defensive and growth sectors. "We could get some political (triggered) volatility and we'll see more divergent performance between stocks," he said in a phone interview, suggesting any volatility may merely present a buying opportunity. He notes a still-accommodative Federal Reserve through next year will be supportive for small companies that are more dependent on the domestic economy. Russell Investments has $246.8 billion in assets under management. 

Written by Jane Searle.

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