Truist’s Lerner: Sharp V-Shaped Recoveries Often Signal More Market Gains

It’s “Jobs Thursday” instead of the usual Friday, with the nonfarm payrolls report moved up due to the July 4 holiday. The New York Stock Exchange will also close early, giving investors just half a session to react.

But so far, the shortened week hasn’t slowed the bull market. The S&P 500 closed Wednesday at a new record, now up 25% from its April low.

Keith Lerner, chief market strategist at Truist, says this rally is one of the fastest rebounds on record. “Despite a carousel of concerns — tariffs, geopolitical tensions, policy uncertainty — the market has powered through with a V-shaped recovery, reclaiming all-time highs,” he wrote in a note Wednesday.

Lerner believes the trend has more room to run, but warns that the second half of the year may bring a rougher ride. “The bar for positive surprises has risen, and crosscurrents remain.”

Why He’s Still Optimistic

Despite the uncertainty, Lerner maintains a cautiously positive outlook. His key points:

• Growth Outlook: The U.S. economy should “muddle through” with about 1.3% growth this year. The labor market is slowing but not breaking, and consumer spending has been inconsistent but steady.
• Policy Support: Lerner expects the Fed to cut rates twice more this year. He also sees the likely passage of the GOP tax bill as a source of market clarity, even if it doesn’t add much to growth.
• Tariffs: Easing trade tensions have helped reduce recession fears, but the lack of a long-term deal remains a risk.

Valuation & Breadth: Mixed Signals

Valuations are stretched, with the S&P 500 trading at 22 times forward earnings — the highest of this cycle. Still, the equal-weighted index is closer to historical norms, and forward earnings estimates have improved.

Technically, the market’s breakout to new highs is encouraging, but underlying participation is weak. Only four sectors — tech, communication services, industrials, and financials — have reached record highs. Small caps, mid caps, and the equal-weighted S&P 500 remain below past peaks.

“The question is whether market breadth can broaden in the second half,” says Lerner. “We’re open to that possibility but will wait for confirmation before shifting our stance.” For now, Truist continues to favor large-cap growth stocks.

Other Market Calls

• International Equities: Truist sees opportunity in developed markets like Europe, which are still lagging after years of underperformance.
• Fixed Income: Preference for high-quality and municipal bonds.
• Gold: Recommended as a portfolio hedge.

History Is on the Bulls’ Side

Lerner notes that sharp recoveries like this one tend to have strong follow-through. “When the S&P 500 rallies more than 20% in two months or less — as it just did — it has been higher one year later in all 10 prior instances, with an average gain of 24%,” he writes.

Despite some warning signs, history suggests this market strength could carry through — especially if economic and earnings data start to broaden out.