So where does that leave you?

Yeah, no, it's fair.

But I think the first thing is right now we have a buyer strike, right? Selling is beginning selling.

And I think the one thing for the market to move up is just to see stabilization.

And then I think people will start looking around and say things are there are some places that look relatively cheap.

And the open question is, what's the catalyst for that? But from our perspective, Mike, I mean, as you pull back, not trying to call some type of bottom, but the risk reward is improving.

You mentioned some of the stats.

You need to see that leadership as a very cyclical group in order to believe that the markets have found some ground.

How do equities keep climbing here when you're seeing some big earnings misses, not just from Alphabet, but from Caterpillar as well? What's your expectation about what this means in our cycle?

Great.

Well, first, great to be with you.

Great to be with you, Jay, as well.

So the big picture is this.

We have a love-hate relationship with tech.

If you think about this bull market since it began, the S&P is up about 115%.

It's a

For more on the markets, let's bring in Truist Advisory Services CAO Keith Lerner to talk about some of the chop, Keith, that we've gotten these last few days and, I don't know, I guess indecision regarding whether or not the CapEx build-out can keep up, not just with cash flow, but now with credit.

Yeah, well, great to be with you guys.

You know, what we've been calling the market more recently was a two-speed stock market in some ways, but the love-hate relationship with tech continues.

So what we're really seeing this month is just rotation.

Last month, there were only two sectors up.

Tech and communication services, they were both up about 4%.

So what do we see this month? Two sectors down, tech and communication.

Are you seeing any, do you think anything regarding the war or the midterms are clearing events of sorts?

Where in the equity market do you see further downside from here?

Yeah, well, great to be with you.

Um, I guess it depends on when we talk about the equity market, uh, as you mentioned, which equity market, because, you know, right now we're seeing the average stock move up, and, uh, you know, we're seeing this rotation from tech.

Just an interesting, uh, stat for, for you all.

Um, you know, last month, uh, there were only two sectors up in the S&P, tech and communication services.

When the S&P made a new all-time high, there was only one sector that was up, uh, uh, that made a new high, which was tech.

So what are we seeing this month? 10 out of 11 sectors are up, and one sector is down.

Is that a bet on small caps or a bet on bonds?

Why so?

Great to be with you, Scott.

I like the pocket square you have today.

Looking sharp.

So as far as the markets, that's been our tagline for the last few years, giving this bull market the benefit of the doubt.

We turned four on Monday.

As we look at the weight of the evidence, it still suggests we should still give this bull market the benefit of the doubt.

So as long as the AI trade stays intact, as long as earnings remain robust, which they're obviously expected to be, then the backup in interest rates doesn't matter all that much?

Does that change anytime soon?

Yeah, you summed it up really well.

You know, it's an open question.

We probably do need lower oil prices to bring down the yields.

But I think if we zoom out a bit, if we look at this bull market, the dominant theme is still AI and tech.

And, you know, since the bull market began, it's outpaced the eco-weight index by, you know, 60 percentage points in small caps as well.

So I think all roads lead back to AI and tech as this dominant theme with these higher rates starting to bite, even if they come down somewhat.

You just can't afford a slip up in the AI trade as long as interest rates keep backing up and oil is around 95 bucks.

What does that mean, the two-speed thing?

Well, so going back to the same thing, If you look underneath the hood, retail is down double digits.

Homebuilders are down.

But you have tech coming back alive, and that's the biggest part of the market.

So you can have both of those happening at the same time.

And we also have this tension, this real tension between these higher rates that we're talking about today.

But why are rates moving up today? Because we have a really strong market.

I mentioned rates and then asked the question, is that more about rates? And where are we in terms of at least your expectations, given we do expect now or the market does another Fed rate hike?

Tell me more.

Yeah, we do, Scott.

But as we've discussed with you a few weeks ago, um, we just thought we were moving into this macro-driven market, and it's just a bunch, much bumpier period because we don't have earnings to the rescue.

And I just think that this chop continues.

It's even normal outside of what happened with the Fed.

You know, we're seeing, uh, uh, the market actually act to script somewhat.

We're seeing the VIX move up.

What if it's the first of several hikes? Does that change anything in your mind?

So where does that leave us in terms of the risk-reward?

Yeah.

Well, um, yeah, I think you kinda laid it out pretty well.

I mean, one of the main theses that we've had is we've moved from this earning-driven bull market, which was really positively skewed over the earnings season to this macro market, which as we've seen in the last couple of days, last couple of weeks, is, is much more mixed.

And we're seeing that reflected in price action, which is really just more of a grind right now, Mike.

So overall, I, I still think the positive is the, the uptrends are in place.

I still think we have to give this bull market the benefit of the, the doubt.

Uh, and I wonder what you think you ought to do with that allocation now that yields maybe give you some cushion here.

Are they gonna be raising rates for the right reasons?

Yeah.

Well, you know, in some ways, it's, it's a combination.

It's, it is strong economic growth, but it's also that inflation and o- obviously oil prices are having an impact as well.

Of course, there's the c- discussions about fiscal deficits, term premium, what's happening in Japan.

So yeah, I, listen, I, I think, um, you know, our view is that they don't necessarily need to raise rates, but, uh, from the last meeting, it, there is this focus on inflation.

And, and if you keep talking about your focus is on inflation, you, you know, you need to raise it.

Do you really think that that's the case, or do you think that could be construed as potentially having political overlay or a lack of credibility in the Fed that, uh, leads to some further jitters in the bond market? In other words, is this not so much of a binary trade as it might seem?

So how do you feel going in?

Yeah, well, great to be with you.

Listen, I think the uptrend is still in place.

I think that what's changing right now is we went through this earnings season that was very, very heavily skewed to the upside.

And as you and Mike were just talking about, now you have a focus on the macro.

The macro is likely to be more two-sided.

Each data point or economic data will be overly extrapolated.

So are we watching the bond market most especially now?

So if you suggest the weight of evidence continues to support giving the bull market the benefit of the doubt in this environment, would you be adding to equities and would you be adding to equities maybe in that more momentum-type bucket?

Yeah, so we would certainly stick with the primary trend, which is up, and then for investors that are underweight equities, we would still be averaging in and if you get some of that kind of typical seasonal, you know, weakness, then we would, we would probably be somewhat more aggressive.

As far as positioning, uh, we still think AI and, and tech is that dominant theme and we've had a reset in valuations for tech.

Uh, last October, uh, PEs were around 32.

Now they're around 22, the lowest premium to the S&P we've seen, uh, really over the last decade.

Um, but outside that, I mean, what's important is it's not just tech.

I mean, you know, in July, we upgraded financials, we upgraded healthcare as well.

In terms of Nvidia earnings tonight as a key barometer of that AI trade that you've been following, what are you gonna be listening for in terms of what it means for just the broader sentiment, broader demand, and Nvidia's role in all of it?

And Scott, I, I do think that in July, even though the headline index was only down 3 or 4%, I mean, we did have, in my mind, a pretty good reset of the areas that were really overheated

overheatedUm, you know, semiconductors from the late March, uh, low to the high in June were up 90%, they corrected 20%.

Tech had its, uh, you know, fifth double-digit correction of this bull market.

And, um, then we've had these laggards move up and we have a more broad-based market.

So I, I would say we're still positive.

We still like tech, but we also have the broader story with healthcare and financials also near all-time highs.

The economy is resilient, credit spreads are tight, and the breadth is the best we've seen in about a year and a half.

What do you think?

I mean, it just sort of highlights how it depends on the day how much this actually matters.

Yeah, we, we talk about the kinda love-hate relationship, uh, with tech, uh, with investors in tech, and I think a lot of times it matters where you're at in the cycle.

And, you know, back off the March lows until June, you know, the market or tech was up 47%, semis were up 90%, so then you come out with earnings.

There's negative cashflow that, you know, that, that puts some initial, um, you know, selling pressure.

But I think, listen, zooming back out, I mean, we had this once-in-a-generation build-out, and you would expect that there's gonna be a lot of spending, and then, uh, you know, there's almost a little bit of, you know, faith that these companies will f- will figure it out in terms of profits.

So that's why I think you're just gonna see this kind of really high volatility back and forth over, not over the next couple of months this year, but probably over the next few years because that cash flow, uh, for some companies that have other businesses likely comes sooner than others.

Um, but we ultimately think, and, and, again, given the AI bull market, the benefit of the doubt, that these big players will figure it out.

Keith, when you say that the potential's gonna be some of these cash flow concerns and questions swirling around cash flow, is that why you think the second half of the year is going to be bumpy, or are there other risks on the horizon that could potentially be annoying for the bull market run?

But what do you think it tells us about the longer term direction in tech?

Yeah, well, great to be with you and Carl this morning.

Yeah, I think the big picture is this.

I mean, you mentioned it already, but from the lows in March to the high in June, semiconductors were up about 90%, so it blew away everything else.

And I think the results that we're seeing more recently are still saying that we need more of a cooling period overall for semiconductors.

I will note, though, even with some of those semiconductors down today, the broad tech sector is actually up today and semiconductor index is up.

So as we take a step back, we are still positive on tech and AI longer term.

Does that change, Keith, your consensus or thesis around small caps? I know you've seen them as a big beneficiary and a way that investors should be, you say, a position going into that next second half of this year.

Is it a buying opportunity, or is it a warning shot?

Um, uh, maybe somewhere in the middle.

I mean, it, one of the di- dichotomies we wrote about, uh, you know, coming out of last month was that, you know, the tech sector was up 18% at the ti- at the same time the Mag, uh, Seven was actually down for the year, and that's a lot of c- because of semiconductors.

So, um, you know, I, I would say more broadly, not just the Mag Seven.

I mean, the one thing that kind of stood out to me is, you know, late last year, the technology sector was trading for about a 32 multiple.

Now that's down to about 23.

The premium for tech to the overall market early in this bull market was about 45%.

Doesn't this change the calculus on some level, on a multiple level, or even just on a growth prospect level?

Keith Lerner, how do we look second half of the year after this record close we're gonna get on the Dow again?

Yeah.

Listen, uh, I think Mike said it earlier, it's been our mantra for some time, I think the bull still deserves the benefit of the doubt.

I think this month, we spoke at the, at the, uh, the first day of the month, Scott, we talked about tech taking a breather.

And as, as Mike mentioned earlier, we've been trading sideways for six weeks, but we have this kind of rotation, which I think is healthy, that m- money's not leaving the market, it's staying in.

And, you know, we're seeing small caps, industrials, technology Mid caps making new highs.

And I will say behind all that, the most important factor in our work is that earning trends for all those different indices are making fresh highs.

And that sets its up- sets itself up well for a lot of things to do well, especially if you get a real resolution to what's happening in the Middle East and you can focus solely on earnings.

Keith, what about you?

Yeah, for better or worse, I'm in agreement with the panel today.

I think the one thing I'm thinking about yesterday's meeting, I mean, afterwards, we've seen credit spreads still stay relatively tight.

And today, we're seeing the 10-year Treasury yield stay below 450.

At the same time, earnings continue to make new highs.

And if we look at the valuations for the market, they're not cheap.

But the PE for the S&P is back down to 20.5 because we've really been consolidating, moving sideways for about a month here.

But what about other areas of this market, too?

And I wanted to get your just general take at the market reaction to this framework of a deal, given the S&P 500 didn't revisit the levels that we saw even earlier this month.

Great to be with you.

Nice to see some green on the board.

I would say overall, the market reaction was fairly positive.

If you look underneath the surface, the advanced decline line was only about 1.5 advances to one decline.

So not as strong of a breath day that we've been accustomed to.

You know, all in all, I mean, if we think about the last week or so, we've seen the eco weight index make a 52 week high.

Do you think that that sort of assumption is a secure one? It seems like there's a lot that could happen in the next 60 days.

So how do you see the market feel positioned at the moment?

Yeah.

Well, you know, in, in our recent note we talked about if we came into this year, it's probably better not to have the headlines ahead of time because, uh, with everything going on, this carousel of concerns, as you mentioned, markets are really drifting higher at all-time highs.

So Mike, all in all, we just looked today a- about, um, you know, when we've seen a market over a 30-day period, a, a- as far as trading days, up more than 15%, what does that look like going forward? Does it give you any type of signal? And, you know, what you tend to see, and, and I know you're familiar with this, Mike, is over, you know, the next one to three months, the, it's about, it's a bit of a coin toss, uh, for markets.

But when you look out over the next, uh, 12 months, markets have been up 14 out of 15 times with pretty strong gains.

Last time we seen this type of action was last May, uh, no coincidence.

And as you mentioned, it is fundamentally based.

But what do you think the underlying economy is doing as we celebrate these new highs?

What's on your list?

Well, I have to start with Qualcomm, one of my companies.

It's on pace for its best day in seven years after the longtime iPhone chip supplier said it would begin shipping data center chips to an unnamed hyperscaler by December.

Few details were actually provided, but those comments more than offset weak current quarter guidance in the company's Q2 report yesterday afternoon, specifically with handsets coming from China.

Rental car company Hertz announced a partnership with Uber earlier today, sending the stock soaring.

Hertz's new Aura Mobility, which is a fleet management unit, will support Uber's robotaxi push, including providing charging and repairs to the, uh, AVs.

The two expect to launch services in San Francisco later this year.

What has impressed you the most outside of those tech reports and the AI story within this market?

Why do you believe the bull market deserves the benefit of the doubt? Why do you think that a weakness is an opportunity?

Yeah.

Well, great to be with you all.

Well, the first thing is, I think the bull market has earned it.

Um, this bull market has been battle tested through a series of shocks from high inflation to h- fast, uh, p- paced interest rates.

And each time, um, the, these companies have adapted, and we're seeing profit margins continue to expand, and we're seeing forward earning estimates at new highs, not only in the S&P, but also by the, you know, by mid caps, small caps, and even emerging markets as well.

So listen, I don't wanna be pollyannaish either, Jonathan.

... do you think we still underappreciate the relationship between this rally and, say, Mythos and Anthropic, and perhaps we're looking too much towards the escalation of what's been developing in the Middle East?

Uh, but, but how do you, how do you merge your two, uh, your two three-letter designations?

Yeah.

It's, uh...

I, I will tell you, for, for my career path-wise, it's been one of the most important things that I did, and I think I mentioned in the pre-box, I, I did them together 'cause I couldn't make a decision about which path I wanted to go, so I decided to do them both.

Um, but it's really important.

So we use a weight of the evidence approach.

And, you know, w- when we think about markets, it's not about tops or bottoms, about being right or wrong, it's about the weight of the evidence and trying to get that, um, the, the evidence on your side.

So I have to ask Keith, when you look at the market and you look at these high PEs, is there anything that's cheap anymore? Is there anything, I know you can't talk about specific stocks, but looking at sectors that looks particularly undervalued and attractive?

Uh, have we used up, uh, whatever we got in terms of evaluation and sentiment reset?

Yeah, well, I mean, we certainly have used up some of the fuel, uh, no pun intended, on, on this move up.

But I would say, Mike, and you know this too, is when you see a strong move off the lows like we've seen, I know you talked about the one example, but more broadly when we look at this, um, it t- tends to bode well looking out 12 months, and we still think this bull market deserves the benef- benefit of the doubt.

You know, on evaluation side, I mean, we got down to about a 19 multiple on the S&P.

I think we could go a, a bit higher.

You know, what's more interesting to me is on the technology sector, you know, this contraction that we saw was about 37% in the valuation.

That is the most extreme PE contraction we've seen, uh, even more than the COVID side.

Um, Keith, in terms of the tech trade, it's, it's interesting 'cause if AI is the narrative here driving this tech trade off of the bottom, off of the V bottom, um, you know, software shouldn't do well in theory [laughs] in the past as AI wins to the detriment of software, and here we have the IGV actually making a go of it, uh, in, in terms of the gains and some stunning gains we've seen from the likes of Oracle as well as Microsoft.

Because we're treating that like it's pretty sacrosanct.

It is.

It's very important.

But I would also remind folks that right now, all we're talking about is Iran.

And as we go back the last five years, I would just say each time we have this different thing on the carousel of concerns and eventually we move to the next thing.

So I would also say what's happening is important, but it's not the only thing that matters.

I mean, at this point.

I'm sitting over here.