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We're tracking the major averages here this morning. They're off to a good start as we begin this new trading week ahead of key inflation data out this week, which might fuel or could even constrain the rally depending upon which way the reading comes in. To discuss further, Keith Lerner, Truist Co-Chief Investment Officer and Chief Market Strategist here with us. I mean Keith, I want to be optimistic. I want to feel like the data is going to come in in favorable of some of these potential cuts that we've been talking about. Sure, maybe not July, but September, it'd be nice to see that more firmed up a little bit. I don't know, what what are you keeping close tabs on here that could sway the Fed one way or the other?

Yeah, well first, it's great to be with you Brad and Sean. I hope you all had a great Fourth of July extended weekend. Um so thinking ahead, um you know the way we're thinking about the overall picture right now is the Fed is likely to cut rates in September. We see an economy that is cooling, we wouldn't call it weak, but it is cooling, and we're seeing those inflationary trends also cool somewhat. So we think it's it's going to be uh you know, time for the Fed to start moving, and we expect, you know, one to two uh Fed cuts this year. And that actually continues what we're starting to see is a slow but global easing cycle. You put that together with profits that are still moving forward. We still think that's a positive environment for stocks, but again, probably not at the same pace that we saw in the first half.

So then Keith, what do you think the gains then would potentially the movement then is still to the upside. It seems like that trend is intact. What do you think then maybe the gains more realistically look like from here?

Yeah, I mean, I I think realistically, you know, somewhere in the five to 10% range, you know, we could still see that. If we look at instead of what I think, the historical data is a starting point. Uh we've seen 27 times historically where the market has had a 10% plus uh first half. If you look at the second half, you tend to add to gains, uh or we've seen gains added 24 of those 27 times, or 89%. So that's a pretty good hit rate. The average gain has been about 9%, but here's one important stat too. In that back half, the average peak to trough decline, meaning at some point you have a hiccup, is also around 9%. So we think the trend is higher, but we do think we'll see one or two pullbacks along the way. And um again, the main the main supports should be fundamentally earnings moving forward.

Keith, where does tech fit into all this because you had been bullish on tech for many months at this point. Recently though, downgrading it to more of a neutral holding. I'm curious then what that tells us about maybe the concentration, are we going to see broader participation and how investors should be viewing tech at this point?

Yeah, it's a good point. We we were uh overweight tech since last November, and then in late June we actually downgraded it to a market rate. So again, not a bet against tech, but saying, hey, we just had one of its we were up over 30% this year, uh over 40% since we upgraded it in November. We saw in last month the the relative performance um in late June became the most on a one month basis in about 20 years. So our main message to our clients was like, listen, we still like tech. We don't think this is a bubble longer term, but on a short-term basis, we're getting a little bit overheated, a bit stressed, and we just think there will be a better opportunity to redeploy capital there in a more meaningful way. What that means for the overall market, if the tech is such a big part of the overall market, we think as we get maybe towards the back half of July, maybe some more chop and some digestion, maybe some rotation within the market. What's interesting Sean is you're also seeing rotation within the MAG 7 uh you know, itself, but I do think we'll see some some of that rotation, maybe more of a choppy market as we head into late July into August.

Which sector is the biggest beneficiary of rotation at this juncture, Keith?

Yeah, it's uh it's a tough call because in in our sector work right now, we only have two sector overweights, which is still communication services, which is still tech oriented, and then we have something, you know, utilities, which is more defensive, maybe a little bit of an AI play, but also which should be supported by by lower yields. I think it's more like where what's going to happen is you're going to just see maybe not things standing out, but maybe a little bit money going into financials, industrials, energy, it's just kind of a little bit of a of a rotation into other areas. And then I think later in the year, I think money will come back to tech and we'll be we'll be looking at uh potentially upgrading it, but we're we're going to be patient for that opportunity to present itself.

Keith Lerner, Truist Co-Chief Investment Officer and Chief Market Strategist. Keith, thanks so much again for joining us here.

Great to be with you.