U. S. stocks hit a rough patch last month and investors are grateful.
Concerns about higher long-term interest rates amid a red-hot jobs report and the prospect of persistent inflation sent the S lower
But this pullback will end up being a buying opportunity for those with strong stomachs, according to Keith Lerner, lead market strategist at Truist.
“Pullbacks are always uncomfortable but are the admission price to the market,” Lerner wrote in a recent note, echoing a statement he’d made during dips last year.
Markets gained a lot of momentum following Donald Trump’s victory, which many believed would result in a reduction in corporate taxes and a business-friendly regulatory environment. That enthusiasm has waned and the S
While the slowdown was unwelcome, some strategists considered it justified, given the magnitude of the stock rally. The consensus among Wall Street corporations that the S
“When expectations are high, a little bad news can go a long way,” Lerner wrote.
Taking a step back now, Lerner believes the stock can advance further later in 2025.
“We are seeing a reset of market prices and sentiment, which had become stretched on a short-term basis, though it is still within the confines of an ongoing bull market,” Lerner wrote.
No one likes watching their hard-earned gains evaporate, but it’s crucial to keep downturns in perspective.
The S&P 500 has fallen 5% or more 30 times since March 2009, which is roughly two such selloffs a year. Even still, the index is up 1,087% including dividends since that point in the recovery from the financial crisis, so the opportunity cost of selling would have been massive.
When U. S. stocks have fallen at least 5% over the past 16 years, their decline typically follows a 7. 5% loss over 28 days, according to Truist. The last reset was close to 5% over a 36-day period, leading Lerner to say that we are now at least halfway there.
Another silver lining is that key parts of the market have already been battered. Small caps are off 10% from their highs, and the typical S&P 500 stock — as measured by the equal-weight version of the index — has retreated 7%, Lerner noted. That means pain could be priced in.
Investors are concerned about the strength of the economy, unlike two years ago.
Better-than-expected progress on tasks means the Federal Reserve will most likely be in no rush to cut rates. In fact, some on the street are worried that the Fed’s next move will simply be a hike.
Although bull markets want a healthy economy, lower rates are a key component of the optimists’ base case. The market trades at a peak valuation, and if rates remain high for six months or more, investors reconsider whether it’s sensible to pay that premium on long-term corporate earnings.
However, Lerner believes the market is overreacting to fears about higher-for-longer rates.
“We would prefer a stronger economy with fewer rate cuts than a weaker economy that requires more aggressive rate cuts,” Lerner wrote.
The US economy is humming along, but it doesn’t seem to be at risk of overheating. Truist’s 2025 forecast for US GDP growth is 2.5%, which should power solid earnings growth. That arguably should be investors’ focus ahead of the upcoming fourth-quarter earnings season.
“A resilient economy should continue to support higher corporate profits, and the economy has proven to be somewhat less interest-rate sensitive relative to history over recent years,” Lerner wrote.
And as long as the U. S. economy stays afloat, Lerner believes domestic stocks are a dud.
“For investors who underweight their target inventory position, we would use a retrospective view of the market,” Lerner wrote.
Truist’s most sensible investment ideas in early 2025 are large-cap stocks rather than smaller stocks, corporations in high-growth industries like generation and communications services, and money services, which are an economically delicate organization. Outside of stocks, the company believes gold is a smart choice. coverage.
Those recommendations are very similar to six months ago, though technology and financials have replaced the defensive utilities sector, which has been a laggard lately.
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