U. S. stocks hit a rough patch last month, and investors are grateful.
Concerns about rising long-term interest rates amid a hot jobs report and the prospect of persistent inflation have caused the S
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 into 2025.
“We are seeing a reset of prices and market sentiment, which had become tense in the near term; this remains within the bounds 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, equal to about two consistent sell-offs for the year. Even so, the index has risen 1,087%, adding dividends, since that moment of recovery from the currency crisis, so the opportunity rate to promote would have been enormous.
When U. S. stocks have fallen at least 5% over the past 16 years, their decline usually comes after a 7. 5% loss in 28 days, according to Truist. The last reboot was close to 5% over a 36-day period, leading Lerner to think he’s already at least halfway there.
Another positive is that key segments of the market have already taken a beating. Small-cap stocks are down 10% from their highs, and the typical stock of the S&P 500 – as measured by the equal-weighted edition of the index – is down 7%, Lerner noted. This means that pain may simply be taken into account.
Investors are concerned about the strength of the economy, unlike two years ago.
Better-than-anticipated job additions mean that the Federal Reserve likely won’t be in any rush to cut rates. In fact, there are some on the Street who worry the Fed’s next move will be a hike.
Although bull markets want a healthy economy, lower rates are a key component of the optimists’ base case. The market is trading at a peak valuation, and if rates remain high for six months or more, investors will reconsider whether it is wise to pay that premium for long-term corporate earnings.
However, Lerner believes that the market overreacts to fears of higher rates over an extended period.
“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 market hindsight,” Lerner wrote.
Truist’s most sensible investment ideas in early 2025 are large-cap stocks rather than smaller stocks, corporations in high-growth industries such as generation and communications services, and money services, which are an economically sensitive organization. Outside of stocks, the company believes gold is a smart choice. coverage.
These recommendations are very similar to those from six months ago: generation and monetary facilities have replaced the defensive utilities sector, which has lagged lately.
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