Truist’s Chief Strategist Downgrades US Stock Outlook Amid Economic Uncertainties
Trust Financial’s chief market strategist, Keith Lerner, has revised his stance on US stocks, shifting from an attractive to a neutral rating. This change comes as the S&P 500 experiences a downturn, influenced by weak economic data, policy confusion, and high valuations.
While economic fundamentals remain stable, Lerner warns that current earnings expectations may be overly optimistic. Investors have grown accustomed to earnings growth surpassing cautious estimates, leading to high expectations. However, Lerner suggests that the market’s projection of low-double-digit profit growth might be unrealistic.
“Forward earnings estimates have stalled, indicating potential overconfidence in profit growth projections,” Lerner stated. He added that the S&P 500’s high valuation leaves little room for negative surprises without impacting stock prices.
Policy uncertainty, particularly regarding tariffs and interest rates, poses additional risks to US stocks. President Trump’s unpredictable approach to tariffs has created uncertainty for trade partners and investors alike. Furthermore, the Federal Reserve is unlikely to cut rates without clarity on tariffs and their economic impact.
Rising long-term inflation expectations reflect consumer unease in the current economic environment. This sentiment, coupled with the potential impact of tariffs, could further complicate the economic landscape.
Despite the downgrade, Lerner still views US stocks, particularly domestic large caps, as relatively strong investments. He favors sectors such as technology, communication services, and financials. However, he advises caution with small caps due to their vulnerability to interest rate changes and weaker earnings.
Lerner remains skeptical of international stocks despite their recent strong performance, suggesting that investors should focus on domestic opportunities in the current climate.
As the market navigates these uncertainties, investors are advised to closely monitor economic indicators and policy developments that could impact stock performance in the coming months.
