00:00 Speaker A
It’s time now for today’s strategy session. Analysts across Wall Street are turning bullish on US stocks. Multiple strategists boosting their year-end 2025 targets on the S&P 500 after stocks recovered from their tariff induced sell-off. Joining us now, we’ve got one of the strategists boosting his target, Keith Lerner, Truist co-chief investment officer and chief market strategist and good friend of the show. Keith, good to see you here. Just take us into the thesis behind why you’re now raising your targets as well.
00:40 Keith Lerner
Yeah, great to be with you all. Maybe I’ll take take a step back for some context. Back in February, we were around all-time highs. We downgraded equities, and then as towards the lows, we told our clients to rebalance, that you should start thinking about upside risk. On the initial rebound, when we had the rebound, we actually modestly took some off the table in hindsight somewhat prematurely, but at that time our work was suggesting that recession risk was still relatively high. After that, China kind of walked back. So, now as we kind of reset and say, okay, where are we at right now in the way of the evidence in our work suggests at least more of a neutral posture overall. And as we look at things, one, the rebound off of this low is actually a positive sign when you look off six months later. Instead of recession, you know, being say 50%, I think our our base case is more of a muddle through. And something that’s changed in since February when we first downgraded stocks was earnings forward earning estimates for the S&P. Back in February was starting to move down. That’s part of the reason why we downgraded stocks. Now they have inflected higher. A lot of that is being driven by tech and communications, and that’s the final point. We had all this tariff uncertainty, right? The big T was tariffs. I think what the market has found over the last few months is the other T technology and AI, which has been the dominant theme of this bull market, is back in the forefront.
03:27 Speaker B
Yeah, Keith, really excited to get your thoughts on the tech sector specifically, which as you mentioned you did upgrade as part of this. To what degree do we continue to learn the lesson from investors that you can rest on your laurels of the MAG 7 stocks, those big tech stocks, regardless of the broader market activity, and how how bullish does that make you?
04:01 Keith Lerner
Sure. Well, the first thing I will say, we’ve been overweight communication services, which is kind of also an AI play all year long. We added to tech, and I think what’s also important with tech, I know a lot of times we’re looking at how much we’ve moved from the lows for the market and tech, but if you look at the S&P technology sector since last July, we’re flat. And you spoke about Nvidia earlier, that’s also only up modestly since last July as well. So, if you look at the big picture for the overall market, the S&P, we were flat for seven months for the technology sector flat for almost a year. So I think as we test these kind of technical levels and you I think eventually we will break above that, there’s probably some pain trade. That’s why I just want to be clear too, I mean, we are starting with higher valuations for the overall market, so I think there could be a squeeze higher, but I don’t know that we’re off to the races. I certainly expect there’ll be some bumps along the way, especially in the summer where we see some illiquidity along the way, but I think in general, the underlying trend is still positive and we want to stick with that underlying trend.
05:46 Speaker A
Okay, you started to answer my question, which was around valuation, so I’ll tap more into that illiquidity. Does that mean low volume during the summer means more volatility in this interim period of time?
06:03 Keith Lerner
Yeah, well, I think what could happen is, well, I’m hoping for the some some adult drums, right? After what we’ve seen the first half, like some boring trade would be actually probably good. But I think what can happen is if you get some unexpected headlines, a lot of people on vacation, there’s less liquidity, that I think you can see moves exacerbated as well. And there’s an old saying, sell in May and go go away, but that’s actually incorrect. What happens really, the market tends to do well until July, and then that’s when you start to see more seasonal weakness as you get into August and September. So, I think that’s something to be kind of on on the lookout for. Um and again, for the economy, we expect more of a muddle through, so this isn’t to our view, like, hey, this is time to be on all offense, but again, I think for investors and even like, you know, people watching the show today, I think we’d be more aligned with long-term talking equity allocations, again, not overly, you know, on offense or defense, but the underlying trend again, I think we have to respect it.
07:45 Speaker B
Right, don’t fight the tape, it sounds like, is what you’re saying, Keith. But I wonder to what extent you feel that investors are somewhat post-tariff, and instead focused on the moves of the Federal Reserve, especially given that we are seeing such a strong market reaction to that cooler than expected inflation print this morning. Does today’s market action show that the Trump that the market is moving from being Trump driven to Fed driven?
08:27 Keith Lerner
You know, I would almost say neither. I mean, they’re both important, but I think I think the way I think about it is for some period of time, tariffs were the only thing that mattered. And I think we’re finding out today, a lot of other factors matter. So tariffs still matter, just not the same degree. The Fed still matters, but not the same degree. And I think the thing with the Fed right now, the reason why I say it matters, but it’s, you know, even if you look at the Fed funds futures, what the market is pricing in, the first rate cut is September. So think about where we are today, we’re still in June. There’s a lot of time between now and September where the Fed really comes back into play in a meaningful way. I think this is a step in the right direction, showing CPI coming down. I think there’s still some lingering questions, are we going to see some changes in the inflation data as some of the tariff impact comes in? I think that’s an open question as well. So in the interim, I do think, you know, I mean, I do think the economic data matters a lot, meaning there was a lot of concern about recession earlier on. Are we going to see some air pockets over the couple next couple months? Is it going to still show some resiliency? So like, it looks like the weekly jobless claims are going to be important, the employment picture is going to be important, the inflation trends and the Fed. So again, I think all these things matter, but I don’t think it’s as as just specific, like this is the main thing that the market is now focusing on. And again, going back broader picture, back to the conversation, tech matters and what what happens on the technical side as well.
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