Fed rate cut and tech boom could lift markets but a choppy summer still looms, analyst warns
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Diverging Reports Breakdown
Fed rate cut and tech boom could lift markets but a choppy summer still looms, analyst warns
The S&P 500 is trading near 22x forward P/E, the top end of its range from recent years. A softening Fed, steady economic data, and robust earnings from key sectors still underpin the bull case. Long-term investors should stay in the market but keep expectations in check, especially as valuations near their ceiling, says Keith Lerner, co-chief investment officer at Truist. But investors may be overestimating the impact of these on the market, according to a new Barclays report, spikes in geopolitical risk have had little impact on US equity returns over the past three decades.
Keith Lerner, co-chief investment officer at Truist, says the technical picture remains bullish, but valuations are stretched, and seasonal volatility could test investor resolve before year-end.
“I think the bias is still high,” Lerner said on Yahoo Finance’s Opening Bid. “I think you still want to position for that, and we’re focused more on some of these growth areas.”
The S&P 500 (^GSPC) is trading near 22x forward P/E, the top end of its range from recent years. While July is historically a solid month, “August and September tend to be a little more challenging,” he said.
Year to date, the S&P 500 and the tech-heavy Nasdaq composite (^IXIC) have both jumped around 5%. AI hype has driven Big Tech stocks like Nvidia (NVDA) to record highs.
Yet despite the tech gains, markets have largely traded sideways for seven months. Lerner noted that while the tech breakout is encouraging, investors should perform “gut checks” along the way.
Long-term investors should stay in the market but keep expectations in check, especially as valuations near their ceiling. A softening Fed, steady economic data, and robust earnings from key sectors still underpin the bull case.
“We still like growth areas, tech, semiconductors, communication services, and we’re starting to add a bit more international exposure,” Lerner said.
Layered on top of seasonal chop and valuation anxiety is a steady drip of geopolitical uncertainty, including ongoing tensions in the Middle East. But investors may be overestimating the impact of these on the market.
According to a new Barclays report, spikes in geopolitical risk have had little observable impact on US equity returns over the past three decades. The S&P 500 has historically shrugged off periods of unrest, with six-month returns staying largely in line with long-run averages after spikes in risk.
At the sector level, industrials tend to outperform after geopolitical shocks, while energy stocks typically lag, a trend that might be unexpected for investors adopting a defensive strategy. However, geopolitical spikes are rarely a reason to abandon equities, per the report.
Francisco Velasquez is an associate reporter at Yahoo Finance. He can be reached on LinkedIn and X.
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