This bull market deserves the benefit of the doubt — what to do now

Published June 23, 2026 · Category: Markets

Overview

Transcript:
Caroline Woods Joining me now is Keith Lerner, chief investment officer
at Truist , Keith thanks so much for being here.

Keith Lerner Hey, Caroline. Great to be with you.

Caroline Woods Keith. Stocks have shown remarkable resilience this year,
despite plenty of reasons for investors to be cautious. What is the
market getting rate right now?

Keith Lerner Yeah. Well the first thing I would say is if you ask me,
the number one reason why this market’s up this year, it’s actually
three reasons profits profits, profits. And I think, you know, if we
think about this bull market cycle. Every bull market has a dominant
theme. The bull market cycle this time as I and tech. But you know
what’s really amazing is as I look at the market today I look at the S&P
500.

Keith Lerner We have forward earnings estimates at fresh all time highs.
But we’re also seeing fresh all time highs and forward earning estimates
for the mid caps and for small caps as well. So it’s a it’s really I bet
best described as an earnings boom right now which with which I think
the market is getting right.

Caroline Woods You know for months investors were worried that this
market was too dependent on a handful of mega cap tech names. Do you
think we’re finally seeing proof that this bull market is broadening out
in a healthy way?

Keith Lerner Yeah, I’ll give you an interesting stat based on that. You
know, that question that comes up right now, the Max seven is actually
negative for the year, while the broader tech, sector is up and the S&P
is up, you know, close to double digits. So I would say, you know, based
on that alone, we have seen some broadening beyond technology.

Keith Lerner And more recently what we’re seeing is is a rotation well
beyond tech. In fact, on a short term basis, the S&P is now
outperforming the S&P 500 over the last month or so. And during this
bull market, we’ve seen about 50, I would say about, this is the fifth,
what I would call rotation trade that we’ve seen.

Keith Lerner And history suggests that this likely has for it to go,
even though we still like the market cap S&P over time.

Caroline Woods So if it’s the fifth rotation of the bull market, do
these kind of rotations extend bull markets or is that a signal that
we’re getting late in the cycle.

Keith Lerner No I think that’s a healthy sign. You know in some ways we
think about coming off the lows and you think about the technology
sector, which we still like. That is eye and tech is the defining theme
of this bull market. But off the low is in March, it rose about 47%. And
when we look at this, relative to the trend that got way extended above
the trend and it outperformed any other sector by about 30 percentage
points.

Keith Lerner So after that rubber band got very stretched, the question
becomes this money leave the market or does it go somewhere else? In
this case, what we’re seeing is that it’s rotating to other areas. To
me, that’s a healthy sign of a bull market. I think ultimately money
will come back to tech. But just like we had a consolidation after it
got extended last year, I think it’s due for a rest.

Keith Lerner And I think it’s a good sign that money is going into some
of these other areas that had lagged.

Caroline Woods So talk to us about the next sources of leadership. If
tech sort of takes a breather, where is the baton getting passed to?

Keith Lerner Yeah, at least on a short term basis. I think more broadly,
I think, you know, you’re seeing somebody equate S&P outperform. And by
the way we have looked at those for previous cycles. They tend to last
about three months as far as the the rotation cycles. So we’re only
about a month into this. So I think it likely has somewhat further to
go.

Keith Lerner But then also the way we’ve really been playing it though,
is, is through small caps. In our annual theme, we talked about, you
know, keeping a core intact, which we still think is the right thing to
do today because we suspect that we were going to have some of these
short rotations, and they’re really hard to time pairing that with small
caps.

Keith Lerner And if you look at small caps right now we’re making
absolute price highs. We’re making fresh relative price highs. What’s
also employing is it’s not just, you know, sentiment. The earnings for
small caps have actually been inflecting higher as well. And if you have
a stronger economy, that all all bodes well for continuation of that
trade.

Caroline Woods If we take a look at the sector breakdown for the S&P
500, though. So thinking a little bit bigger than mid-cap, some small
caps, you know tech and energy industrials still leading on a year to
date basis. Not necessarily the case this month for energy consumer
discretionary health care of financials. At the bottom of the list there
in terms of year to date performance, where should investors be thinking
about the next opportunities there?

Caroline Woods Do they keep investing in what’s working or is it time to
shift into other areas?

Keith Lerner So the way we’re thinking about this now is even though we
think tech’s due for a rest, we think Money Ultimate comes back because
we historically have looked at bull market cycles where there’s the 90s
when tech was the leadership, or it was like the 2000 when we had
industrials and emerging markets leadership. That leadership tends to
persist towards the end, notwithstanding these kind of resting periods.

Keith Lerner So if techs and I think one of those resting periods now, I
think other areas are likely to outperform near-term oil, probably
things like financials. We just upgraded financials about a week and a
half ago. Industrials are acting better as well. So I think those are
two areas that we think, at least on a short term basis, are likely,
likely to see some of those flows from from tech.

Caroline Woods What are you avoiding at this point?

Keith Lerner At this point, we’re still a little bit more cautious on
some of the consumer play. Specifically, consumer staples is something
we downgraded more recently. If you have an economy that’s still
resilient, and then you still have this kind of two speed economy. You
know, we’re seeing for consumer staples earnings somewhat weak. We’re
seeing relative price trends somewhat weak as well.

Keith Lerner So you know that’s a key area that we’re avoiding. And even
though I say the economy’s know so much strong the Board of Consumer
discretionary sector is much more mixed. So we’re not seeing as many
opportunities, in those two sectors that are really, you know, being hit
by this two speed economy that, that we all talk about often.

Caroline Woods And thinking about if tech does take a breather, what
does that mean for the S&P 500 performance from here? Because we know, a
handful of those names are responsible for a lot of its move. So is this
an S&P 500. We know that the Russell is already outperforming the S&P

1. But overall for those investors who are, you know, maybe just
   exposed to the S&P 500, can they expect more gains from here or could
   they expect a consolidation.

Keith Lerner Yeah. So I think I would probably answer that both I think
in the near-term more of a consolidation, maybe a little bit of a
bumpier path near term because as you mentioned, I just think, you know,
when you’ve had, you know, such strong gains in a short period of,
outperformance, it’s normal to expect a bit of a, of a consolidation.

Keith Lerner And, you know, historically, markets are typically two
steps forward, one step back with tech. You went three steps forward
without any type of step back. So I think it would be, you know,
perfectly normal. And I would also say the earnings trends for tech are
still by far the strongest. But to your point, such a show top heavy,
even though you’re seeing this on the line rotation, you know you’re
likely going to see that some of those gains below the surface.

Keith Lerner And because tech is almost 40% of the S&P, and that’s
before we even take into account communication services, I think it’s
more likely of a return somewhere a resting period before, you know,
before it takes the baton back. But again, below the surface, people are
picking individual stocks, doing sectors. I think there’s still a lot of
opportunity. And as I as you just mentioned, I small caps are at fresh
highs, I think will be a beneficiary of some of that rotation as well.

Caroline Woods So if an investor doesn’t have exposure to small caps
just yet, is it too late to get in or is there still value there?

Keith Lerner You know, we still see value there. You have to yeah. Think
about things in context and zoom out like small caps. Up until recently,
you know, the relative price of small caps was the lowest in about 20
years to large caps. So we just think there’s more to go here. And I
would also say it’s also in some ways, even though small caps are
thought about being economically sensitive as investors look beyond big
cap tech.

Keith Lerner But maybe surprising for people is small cap tech is is is
is is doing quite well. In fact, small cap tech is up almost 50% this
year. So why is that? Well, I think as you have these trillion dollar
companies and money moves out and looks at the picks and shovels of
this, I bill, they’re looking beyond the.

Keith Lerner So in some ways small caps benefit from the economy
improving some more exposure to financials industrials. But also it does
have this kind of higher beta technology sector. As part of the as by
the euro index.

Caroline Woods You know, some investors might look at record highs and
assume that stocks must be expensive. Are they? And I guess which areas
of the market are expensive right now and where is there still value.

Keith Lerner Yeah. You know, it’s interesting when stocks make new highs
people get there’s a lot of anxiety. And you know I came into the
business in the 90s. New highs was a good thing. And you went through a
couple crisis as far as the tech bubble, the financial crisis. And
people get nervous in new eyes when we test out, I guess, to the first
point where we test out new highs.

Keith Lerner And you look at a year later, returns are around average,
so not better or worse. So I often say like new highs are a feature of a
bull market, not a, not a bug. To your point on the, the valuation side,
we are which relative to history on different indexes, especially the
large cap index. But I would also say, like, you know, it’s hard to
really compare today’s market versus the market from, you know, 30 years
ago, because 1990, the S&P 500, tech sector was only about 5%.

Keith Lerner I mentioned earlier, it’s almost 40%. Those companies tend
to have higher valuations, just in general, higher profit margins. And
then when you move away from the the, you know, the tech sector and you
look at small caps and mid caps, they’re around, you know, the average
valuation for the last 20 years. And then maybe the last point on this
this year as we look at the S&P as a whole, the entire game this year
has been all earnings.

Keith Lerner The valuation has actually compressed this year. So that
tells you how strong earnings, are. And then to your question around
what’s expensive, what’s not I you know, text around the 25 multiple.
It’s come in from 32. I can’t call that cheap. But I don’t think it’s
overly grievous either. And given their earnings momentum and as we look
through most of the sectors, most of them actually look pretty
reasonable.

Keith Lerner I don’t really see much in our work that suggests things
are are, well, overheated. As far as, as I look at the 11 sectors for
the, the S&P, because a lot of these sectors, whether it’s health care,
whether it’s financials, they have lagged somewhat, maybe, you know,
industrials, you could argue is somewhat more expensive.

Keith Lerner But that’s also because that’s being looked at more as I
play relative to history.

Caroline Woods But thinking about what’s actually cheap right now. You
mentioned small caps. Are there any areas that you’re flagging as on
sale?

Keith Lerner Yeah, I would say on the margin I would go back to the
financials being relatively cheap. And if the economy continues to chug
along, which is our base case, they should be able to to do well, you
know, healthcare, we’re more neutral. It’s a cheap sector. We look at
something that’s cheap and that has earnings momentum.

Keith Lerner So that combination is somewhat lacking at this point. But
that is a cheap sector. And with energy we’re giving that a little bit
more of a leash. You know energy was the hot sector early this year.
Obviously it’s come down a lot as we’ve moved. You know, oil prices have
come down from about $100 down to the mid 70s.

Keith Lerner But now on a short term basis, it’s relatively oversold.
And the valuations have come in quite a bit. So we think okay, we’re
going to give us a more room here. That’s one of the cheapest sectors in
the market that we see today.

Caroline Woods It sounds to me like you’re pretty bullish, even though
you might be expecting some consolidation in the near term. What’s the
one risk investors are under pricing today though.

Keith Lerner Yeah. You know and I would phrase it like when I think
about the overall market, our mantra for the last few years is this this
bull market deserves the benefit of the doubt. As a portfolio manager
and as a strategist, I’m always worried about the downside risk. And
things get me wrong. And I would say, I mean, one thing that we’re
watching closely right here is the ten year Treasury yield.

Keith Lerner It’s hovering around 4050. And we started to see that move
up in a meaningful way. I think that would be a risk for the overall
market. And then obviously we have, you know, a new fed chair with a
different point of view about how to, move forward. I think that’s going
to provide some more volatility. We’re also in a midterm election year.

Details

Keith Lerner And I will just say, even though we’re positive, we do
think it will be bumpier. Historically, we tend to have about three
pullbacks a year of at least 5%. We’ve had one pullback. So I would just
you know I I’d probably say be somewhat balanced in that stay with the
primary trend. Likely to see some bumps whether it’s interest rates the
mid-term elections or often it’s something that we’re not talking about
today.

Keith Lerner I always talk about this carousel of concerns, like who had
Iran on their bingo card. As far as one of the main risks for the
markets this year. So I think we have to be prepared for that. But what
we’re focused on is really going back to the basics is profits, profits,
profits. And that’s what we’re going to be following to make sure those
earnings continue to move up.

Keith Lerner We start to see that change at all. You know I’ll try and
we’ll also change. But so far so good okay.

Caroline Woods All right I think it’s a good time to transition to our
rapid fire game of this or that. Quick questions quick answers. Are you
ready Keith.

Keith Lerner Way to go.

Caroline Woods Valuations today. Expensive or fair? Fair S&P 500 by year
end. Higher or lower from here.

Keith Lerner Higher. And that’s supported by when we’ve seen a lot of
the momentum we’ve seen off the lows recently. Even if you have some
give it back to me. That should be a positive for the for your end.

Caroline Woods How much higher?

Keith Lerner You know, a long time ago I did away with trying to do
price targets, but, I would just say going back to the studies that we
did, after we had these strong gains, they suggest, you know, 5 to 10%
upside just based on historical basis. Is is is is this is, potential.

Caroline Woods So 5 to 10% more.

Keith Lerner Correct from where we are today? Just the basic studies
that we did after having these kind of momentum, thrust that we’ve seen
since the March lows.

Caroline Woods Okay, summer set up pause or push to new highs.

Keith Lerner I think we’re more likely to have a more of a summer pause,
more of a refresh before making new highs towards the end of the year.

Caroline Woods Bull market, early, middle or late innings.

Keith Lerner I would say it’s more, you know, six, maybe 6 to 7 innings
is our thinking coming into the year. We call it the seventh inning
stretch, but we still think this this bull market has the time left.
Last thing I’ll just say quickly is the first part of the bull market
tends to be the strongest. And then the last part of the bull market
tends to be the second strongest.

Keith Lerner So keep that in mind.

Caroline Woods Market leadership, tech or broadening.

Keith Lerner Near-term broadening money eventually I think, rotates back
to tech. But I think that’s a later in the year story.

Caroline Woods The biggest beneficiary of that broadening.

Keith Lerner I’ll go back to the thing we’ve talked about today is, is
small caps.

Caroline Woods Small caps or financials from here.

Keith Lerner Oh, that’s a tough one because, for small caps to work, you
need financials, to a certain extent, but I would still stick with small
caps. I think there’s more leverage to the overall economy.

Caroline Woods More upside energy or industrials.

Keith Lerner Oh, that’s a tough one. What does it mean? Reversion play,
which is energy and went to more momentum play industrials. I’ll I’ll go
with with with energy as far as more upside potential given how oversold
it is.

Caroline Woods Better beaten down sector health care or consumer
discretionary.

Keith Lerner I’d go with health care, even though we call it Charlie
Brown, that it tends every time you think it’s gonna get going and it
drops the ball. But, I’ll go with health care.

Caroline Woods Consumer discretionary or consumer staples.

Keith Lerner I would go, we’re both we’re on the way, both sectors. So
that’s a tough one for me. Can I do a push on that one?

Caroline Woods So neither.

Keith Lerner You know, I’m not we’re not we’re not bullish on either
sector right now.

Caroline Woods I trade healthy leadership for too much concentration.

Keith Lerner I think healthy leadership I think for some people
something that the US should keep in mind. There was a study done by
Arizona State that showed about 2% of stocks account for almost all of
the outperformance of stocks over time. So I think it’s, I think it’s
basically just a reflection of the I innovation, bull market that we’re
in.

Caroline Woods The biggest second half risk.

Keith Lerner I think it’s race is probably the biggest risk. I think the
midterms as well. And, I think oil looks pretty contained, but that’s
something to keep an eye on as well.

Caroline Woods Rate hikes this year yes or no.

Keith Lerner No we are we’re still in the camp that the the Fed’s going
to stay pat today okay.

Caroline Woods So no rate cuts either market sentiment today complacent
or appropriately optimistic.

Keith Lerner On a short term basis. Slightly complacent not at an
extreme but the put the call ratios are at a extreme meaning there’s
been a lot of buying and not a lot of protection. So slightly
complacent.

Caroline Woods Record highs reason to be cautious or reason to stay
invested.

Keith Lerner Which is to say invest it. That’s what the book suggests.
Again, a feature of a bull market, not a bug as long as it’s backed by
fundamentals, which this one is, in our view.

Caroline Woods One word to describe how your feeling about the market
for the rest of 2026.

Keith Lerner When word oh, I was I say given the bull market back to the
Dow and I don’t know if I’ve one word, but uptrend.

Caroline Woods Keith Lerner Chief Investment Officer at Truist, thank
you so much.

Keith Lerner Thank you.

Caroline Woods If you enjoyed this street talk, check out our full
interview with Mark Gibbens. He has an 8200 price target for the S&P 500
and explains how to position for the next leg higher.

Source

Originally published at www.thestreet.com.

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