Keith Lerner on Market Outlook: Benefit of the Doubt Amidst Fed Uncertainty

Market Performance and Fed Expectations

• 📈 The market is currently at record highs, with the S&P 500, global markets, the Eco8 index, and the bank index all reaching new peaks.
• 🎯 The market is pricing in approximately an 80% chance of three rate cuts by year-end, creating a potential for short-term disappointment if the Fed pushes back.
• ⚠️ A key risk is high expectations going into the Fed meeting, which could lead to a short-term setback, though a significant pullback is not anticipated.

Earnings as the Market's North Star

• 💡 Earnings have been the primary driver of the market over the past year, outweighing narratives around inflation, interest rates, or geopolitics.
• 💰 The strength in stocks like Oracle and Nvidia highlights that money is rotating within the market rather than leaving entirely, indicating a healthy market dynamic.
• 🚀 While the technology sector remains a favorite due to strong earnings momentum, there's a growing positivity towards small caps for their catch-up potential.

Broader Market Trends and International Exposure

• 📊 Even with a focus on tech, there's an incremental broadening of earnings strength, with small caps and midcaps participating more significantly than earlier in the year.
• 🌍 While historically favoring the US, Truist Wealth has increased exposure to emerging markets and international developed markets like Japan, which have shown strength.
• 💰 Gains in international markets are largely currency-driven, with forward earning estimates for developed markets being negative, but the overall trend shows over 90% of global markets in uptrends.
• 🇯🇵 Japan's recent breakout to a 40-year high exemplifies the strength seen in international markets, reinforcing the thesis of giving the market the benefit of the doubt.