Equity Markets Driven by Profits: Keith Lerner on Market Trends and Economic Indicators

Market Performance and Key Drivers

• 📈 The equity markets are pacing for another winning week, with major averages near record levels, despite a "carousel of concerns."
• 💡 The north star of the bull market remains profits, with forward earnings estimates for the overall market continuing to move higher.
• 🧠 The market has been churning, with the S&P 500 moving sideways for about a month and the Ecoeight index for two months, which could set up well for a year-end rally.

Economic Indicators and Sector Performance

• 📊 While speculative flows have caused volatility, there's been a slightly more defensive turn in performance within large caps, with recent strength in healthcare and utilities.
• 🎯 The defining theme of the current bull market is still AI and tech, with earnings momentum concentrated in large-cap tech stocks.
• 🚀 Even within the MAG 7, money is rotating between stocks, indicating resilience rather than outright market exits.
• ⚠️ Pockets of froth exist, but with more bears than bulls in recent sentiment data, the market is far from euphoric.

Commodities and Inflation Outlook

• 🛢️ Oil prices have surged due to recent geopolitical news, but overall sentiment has been more negative on oil, while positive on gold.
• 🥇 Gold became extremely stretched relative to its trend, and while it still has a place in a portfolio, a short-term pullback and consolidation are expected.
• 📉 Despite potential inflation upticks from tariffs, factors like cooling rents, stable 10-year Treasury yields around 4%, and weaker job numbers suggest the disinflationary trend is likely to persist.
• 🏦 The Fed is expected to cut rates next week, and unless an extreme outlier occurs in the CPI data, this view is unlikely to change.