Market Perspective – Pullbacks, positioning, and silver linings

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[Keith Lerner] Hello, this is Keith Lerner, Co- Chief Investment Officer at Truist Wealth. Given a very volatile market and a lot of day to day headlines. We're going to take some time today to make sense of what's driving those headlines, and also provide our perspective on the markets.

Up front - we've been very positive for the past few years on the overall equity markets, but in early April, we downgraded stocks for the first time in two years. We've also this year been recommending to upgrade the quality of portfolios and to rein in some of the risks. That said, after this recent pullback that we've seen, there is a silver lining. We've seen a healthy reset in valuations and sentiment, and that should help cushion the downside.

So why is the market down so much and having such a struggle this year? Well, context is important. Don't forget we just had a really strong two year period with relatively low volatility. We also expected simply with a transition in Fed policy, we would see deeper and more frequent pullbacks and then on top of that you throw in the Russian invasion of Ukraine, and then more recently, lock downs in China. That's all hurt global growth. And inflation is also staying stickier, meaning the Fed is having to be even more aggressive than anticipated at the beginning of the year.

So as you can see, we have a very complicated global backdrop. This is one of the reasons after being very positive the past two years we downgraded our view to neutral in early April. However, as prices continue to decline, we don't think it makes sense to become increasingly negative. For one, we still think recession is unlikely over the next six to 12 months. And that's important because stocks tend to rise about 85 percent of time when the economy is in expansion. And the service side of the economy is booming right now even though there's challenges outside of that. The other positive is we've seen a healthy reset, not only in valuations, but also investor sentiment. Stocks are now trading at much more reasonable valuations relative to the beginning of the year. And investor sentiment is very depressed. From a contrarian standpoint, that's a positive because markets are all about how data comes in relative to expectations. We're moving to a point where a little bit of good news could go a long way.

We've already recommended several tactical shifts to reduce portfolio risk this year. At this point, considering the sharp decline in equities, we are not recommending to further reduce equities for those investors that are aligned with their long-term targets. Market pull backs -- volatility is uncomfortable. It always comes with bad news, but it's the admission price to the market and the potential for earning higher long-term returns.

Our team will continue to monitor global financial markets for opportunities and risks. Please reach out to your Truist advisor to learn more about how our views may impact your portfolio!    

Keith Lerner, CFA, CMT

Co-Chief Investment Officer
Chief Market Strategist
Truist Advisory Services, Inc.

Our take on the recent market pullback, our positioning, and why despite holding a neutral view, we aren’t sellers at current levels given some silver linings.

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