June 2026 edition

Hello and welcome to this month's Market Navigator Audiocast. I'm Keith Lerner, Chief Investment Officer for Truist Wealth. And we just released the June Market Navigator, and we're really focused on 3 key areas. First, tech domination. Second, where does the market go from here? And third, tactical positioning, and we did make a change that I'll speak about later in the audiocast.

So let's get started.

So last month, the key theme that stood out to us was this concept of a Teflon market. As we were writing the letter this month, what really stood out are those 2 words, tech domination. And I often say that every bull market tends to have a dominant theme, and this bull market's dominant theme is AI and tech. And I know you've heard that from me repeatedly over the recent years, but it still holds today. And if we think about the performance in May, the tech sector gained more than 15% and has now rallied more than 40% since that March 30th low, and what that tech sector is doing is pulling up everything with it. So that helped propel the S&P 500, the broader market, to a 9 week winning streak and record highs. But we also saw small caps, midcaps, and emerging markets also make fresh highs during the month as well. And I would say, even though tech is dominating, the good news is this is being supported by earnings and photo earning estimates that are also at a 52 week high. And even though the AI conversation is front and center, I still don't know that investors fully appreciate just how far the reach of tech has been across the equity markets and the economy. So let me give you a couple of quick stats. Almost 70% of global market games this year can be attributed directly to the tech sector. I mean, think about that, 70 percent. And that's as high as 95% for emerging markets. But other areas, even like, say, small caps, which don't get the same attention, small cap tech is up 50% this year is about double the gains of large caps. Now, in the small cap indices, tech has a smaller allocation, but still, it's really having a notable impact. And then as we think about the economy, you're thinking, hey, why has the economy been so resilient? In some ways, you know, we we're seeing more of this business investment led recovery and as another stat, Tech investment or capital spending as a as a percentage of the overall economy is now close to 5%. For historic comparisons, that's actually greater than any level that we saw during the 90s technology boom that we saw. So, again, the main point here is this is a far reaching impact and tech is that dominant theme.

So let's move to our 2nd point of today's audiocast. Where do we go from here, especially after these kind of really robust gains that we've seen. Upfront. I think the way we look at it, you know, focus on this weight of the evidence approach, on balance, it continues to suggest that the bull market has more upside, albeit we do expect some bumps along the way. So let me help you break it down. We'll start with the historical perspective. The good news is that strong price momentum, like we've seen more recently, has tended to be a positive sign. So again, we've had really strong gains in a short period of time. We can test that out because the knee jerk reaction is often, hey, the market is getting very stressed, and maybe in the short term, that is the case. But when we look back historically, when we've seen, let's say the S&P 500 gain more than 15% over a 30 day period, which it has recently, we can look at it and say, okay, what is that historically meant as a starting point for markets? You know, in the near term, it's a bit more mixed, but here's the important part for investors. Over the next year, when we've tested this out and look back historically, the market has saw further gains 94% of the time or 15 out of 16 times when we've seen this happen since 1950, the market was up a year later. And then also, I mentioned the S&P was on a 9 week winning streak to close out May. When we look back historically, when we've seen these type of events, there's somewhat rare, we've had 10 instances since 1950. When we look forward a year later, the market has been up 8 out of 10 times. Now, the other thing that we looked at is said, okay, what were those 2 times the market wasn't up, those 2 periods corresponded with recession, our base case as mentioned is that we will not see a recession. So again, as a starting point, history suggests the momentum that we are seeing today. At least when you look over the next year is still a positive. Again, it doesn't mean it's going to be a straight line higher, but that is a positive.

Let's now talk about fundamentals. From a fundamental perspective, I think what would surprise some investors is, despite these strong gains this year, valuations or the forward PE for both the S&P 500 and the text sector is actually below where it began the year. And you'll make, um, you know, ask the question why, well, it all comes down to what we talked about last month. profits, profits, profits. We've seen forward earning estimates being revised at one of the quickest paces we've seen in history for not only the S&P, but for small caps and for midcaps as well. Okay, so all in all, you know, fundamentals remain solid. Turning to another part of our weight of the evidence framework is market signals. And there, the primary market trend remains intact, even though we all have certainly seen some areas of complacency, um, you know, in the market, and I would say expectations are somewhat higher. But that primary up trend is firmly in place. Okay, the other question I tend to get, uh, when I walk through our, um, you know, clients through this framework is, you know, what are the risk? And I would say, you know, as I look at some of the risk, after the run-up, you know, the markets ability to absorb negative surprises is reduced, right? Those expectations are higher. Um, we've only had one pullback this year of 5%. Historically, we've averaged about 3 pullbacks, 5% or more a year. I, you know, there's still a lot of focus on oil and rates. They've been, you know, better behaved recently, but if they started going the wrong way, that would be problematic. You know, we also are going to see a wave of Mega cap IPOs coming out, especially AI focused, which could lift enthusiasm, but you're also bringing more supply to the market. So that probably means more volatility as well, but all in all, looking at this weight of the evidence framework...  Again, the primary market trend remains in place and we would view pullbacks as opportunities.

Okay, we will now transition to the 3rd point, which is tactical position. And so what does all this mean for how we're thinking about portfolios from a high level? And I would say from a global perspective, we still retain a equity bias, we still maintain our U.S. large cap and growth tilt, given we are seeing stronger fundamental and earning trends relative to the globe at large. You know, that said, uh, emerging markets, you know, powered by Asia, also this AI theme continues to be an area of leadership. That's an area, certainly on pullbacks, we would be more interested in as well. I didn't note up front, we made a change. This month, we downgraded our view of international developed markets from neutral to less attractive. And let me provide some rationale behind that. You know, valuations still look, I would say, at least modestly cheap, but key factors in our work have turned less supportive. What we're seeing is deterioration in relative price trends, so comparative price trends are moving lower. And then the earning trends relative to the rest of the globe are at fresh lows. So those 2 things are going against markets, we're also seeing that the economic revisions are starting to move down, probably in part because of what's happened with oil prices in the geopolitical situation. At the same time, this is happening, the central banks, especially in Europe, are actually talking about raising rates, and I think that would be more problematic. So again, downgrading international developed markets, um, you know, one notch. Uh, as we uh, kind of move back with uh, to the to the US. I already talked about a large cap and a growth tilt. From a sector perspective, we are maintaining that long-standing attractive rating on tech. We did upgraded communication services last month, and we continue to view energy as an effective portfolio diversifier, given kind of this ongoing geopolitical risk. I will say there's a common bond with those 3 sectors. That's where we are seeing the strongest earnings momentum out of all of the 11 sectors. And again, even with tech, yes, it's becoming a bit extended on a short-term basis, but that long-term positive view remains intact. We have a couple of interesting charts on semiconductors and software in this week's navigator if you want to take a look there. Then on the fixed income side, you know, the 10-year treasury yield is now hovering back around 4.5%. It definitely has moved alongside oil prices. From my perspective, with oil, with interest rates moving back up, we see the risk reward for long-term yields as attractive at these levels and also as a portfolio diversifier. So that's a wrap. you know, as always, you know, we'll continue to follow the weight the evidence. Keep an open mind and update you as our views evolve. We hope to catch up with you next month.