Markets are positive, may see another correction: Strategist

Wed, Aug 21, 2024, 8:23 AM

"Now, the first thing I'll just say the pullback we've seen off the low, I mean the peak to trough decline was about 8.5%. If you look at it historically after strong first halves, you normally see a correction of about 9%. So that was, pretty good or pretty consistent with history," Lerner tells Yahoo Finance. "You also tend to see, one or two or three other corrections by the end of the year. So I think we'll likely have another corrective period. But I think here's the important thing is that we're in a bull market. The primary trend is still positive."

00:00 Speaker A

and we're looking at gains for today. As of this week, the MAC 7 gaining more than 1.6 trillion in market cap since August 5th. That's nearly half of what the S&P 500 has gained in that same period, over 3.6 trillion after the market route hit mega cap tech as recessionary fears in the unwind to the carry trade pushed markets lower earlier this month. But when you take a look at today's movements to the upside, take a look at the rebound that we've seen, what should we prepare for going forward? Bringing in our next guest, we want to talk about all of this movement with Keith Lerner. We've got Truest co-chief investment officer and chief market strategist joining us. Keith, it's great to see you and I know that you specifically have been looking at tech. You got a bit, not bearish, but you were saying that we were ready for a bit of a pull back. Now you're back saying that you like these valuation levels. What does that signal just in terms of the market leadership that we could see?

01:46 Keith Lerner

Yeah, well great to be uh back with you actually. You and I and and Brad were together on that Monday opening when the VIX went up over 100%. So, you know, two weeks later here we are almost, you know, 1% away from all time highs uh for the market. So going specifically to tech, um we downgraded tech at the end of June because we thought it got stretched on most of our metrics that we looked at. And then during that same week that I just mentioned on August the 8th, we upgraded uh tech because in our work it's it went from the best one month outperformance in 20 years to the one month worst underperformance in 20 years. And all that correction in our work was just repositioning the earning trends for technology is out of 52 week high. So our main uh focus is that we still think tech is leadership and we think that AI story is still intact, so that at this point, you know, we are back to overweight again doing that earlier this month on the pull back.

03:37 Speaker A

Keith, I do not have enough Dramamine for all of these moves that we've been tracking. We're seeing VIX spike and then of course we see the selloff and then now we're back at these levels where we're talking once again about being in the ballpark potentially of all time highs for the major averages here. As you think about what investors should be doing to diversify even if they are trying to ready their portfolio for what some of your other industry colleagues are saying, hey, brace for another potential downturn. Where should that diversification lead them?

04:35 Keith Lerner

Yeah, it's fair. Now, the first thing I'll just say, the pull back we've seen in um off the off the low, I mean the peak to trough decline was about eight and a half percent. If you look at it historically after strong first halves, you normally see a correction of about 9%. So that was um, you know, pretty good, uh pretty consistent with history. You also tend to see, you know, one, two or three other corrections by the end of the year. So I think we're likely have another corrective period, but I think here's the important thing is that we're in a bull market, the primary trend is still positive. You want to stick with that primary trend until the weight of the evidence shifts and use pull backs as opportunity. And then answering your question more on the diversification side, I mean we invest globally. We still like the US. We're still team USA. We still prefer large caps over small caps uh as a whole. And then outside of that we think high quality bonds are actually bonds are acting like bonds again. So we like bonds even though like I we did cut our duration more recently. Um as well, and then lastly I'll just say, you know, we we do have just for diversification, we have a modest position in gold as a hedge, which is actually making uh, you know, all time highs right now.

06:18 Speaker A

I'm just going to pick it back off that, Keith. You said that you at Truest are still team USA on the investment perspective. Who is the analogous Steph Curry? What What sectors is the analogous Steph Curry or even some of these specific names within themes that you're tracking uh across this investment thesis right now?

07:01 Keith Lerner

Yeah, so I I kind of gave it away earlier. We're still, you know, we're overweight tech or over communication services, and uh overweight utilities. Utilities is a play on somewhat low interest rates, number one. A little bit of an AI play and also somewhat of a of a of a cooling economy also. I will say though, more broadly, you talked about this, I mean, we are seeing other areas participate. Your financials, industrials, staples also are doing well. So I think the market will have broader participation, but we still think the magnificent uh seven in the technology is still leadership. So we think still think that's the Steph Curry, but like the team USA basketball team was pretty deep and broad and I think this market is just you're seeing better signs of that right now as well.