Sabrina Bowens-Richard — Head of IAG Client Engagement, Senior Vice President, Truist Wealth
Hello and welcome to Truist Wealth’s quarterly economic and market insights livecast.
Today, we’ll share our 2026 outlook in a session titled, the Seventh Inning Stretch. I’m Sabrina Bowens-Richard, Head of Client Engagement for Truist’s Wealth Investment Advisory Group.
For the past couple of years, I’ve worked behind the scenes to bring you timely insights, and a platform to get your questions answered. And now I’m truly honoured to sit alongside such talented colleagues and friends.
My passion for your success is personal. Parenting a child with a rare genetic disorder has taught me that meaningful outcomes truly come from empathy. They come from advocacy and they come from equipping others to thrive. I bring that same focus to you today, guiding you through opportunities with greater clarity, even when the path ahead isn’t always certain.
I’m joined by three of our most trusted experts: Keith Lerner, Chief Investment Officer and Chief Market Strategist; Mike Skordeles, Head of US Economics; and Chip Hughey, Managing Director of Fixed Income. These are some of the most influential voices in the industry, often featured on CNBC, Bloomberg, and in The Wall Street Journal. So before we look ahead, let’s just take a quick look back at 2025. The US economy grew at a moderate pace, supported by strong consumer spending and early benefits from the AI and technology investments. Inflation cooled a bit, giving the Federal Reserve some room to cut rates late in the year. But, despite those challenges like tariff uncertainty and geopolitical tensions, markets actually delivered strong results. Most notably, gold knocked it out of the park, surging more than 60 percent in the year. Global equities were also impressive, led by international markets, while the S&P 500 gained 18 percent. Fixed income also performed well for the year. So, Keith, before we start, do you have one or two thoughts to add about the year?
Keith Lerner — Chief Investment Officer and Chief Market Strategist, Truist Wealth
Certainly. Well, first, welcome.
Sabrina Bowens-Richard
Thank you.
Keith Lerner
So exciting to have you here and—
Sabrina Bowens-Richard
Thank you.
Keith Lerner
—we all have worked together for several years, so it’s great to have you with us as well and bring your experience with the team. So I’ll answer your question now specifically. You know, last year, as you mentioned, I mean, you just showed we had really strong and broad-based gains throughout the capital markets despite – you know - the carousel of concerns that continued. And on the next chart, I just wanted to highlight is that, I think back to April, and there’s a lot of uncertainty in the market. And uncertainty often makes—or there’s a lot of emotion that happens. And sometimes, investors do the wrong thing at the wrong time. And I think, as we move into next year, there’s going to be other bouts of uncertainty. This is a great chart to bound our clients with. And what you’re looking at is the annual returns for the stock market. And on the left-hand side, it shows when the stock market has been down for the year. And on the right-hand side, it shows when the stock market has been up. And what does it show? It shows a lot more green than red. Doesn’t mean that we can’t have red. But as you’re thinking about more of a long-term focus as your starting point, I think it’s important to just remember that companies adapt, the economy adjusts and, over time, the market does tend to rebound. So there’s certainly risk with investing, but this, really, chart highlights there’s also risk of not investing. And I think, again, as we go through this year, it’s a really good chart to keep in the back of your mind.
Sabrina Bowens-Richard
So, 2025 was certainly a good year. As we look ahead to 2026, I guess the key question is, can this momentum continue, and how should we be positioning portfolios for opportunities and risk, given this mid-cycle environment. So with that, you know our outlook for the year, Keith, is a seventh-inning stretch. Walk us through what’s behind that.
Keith Lerner
Sure. And as you know—you’ve been through this with us—is we give a lot of thought to the outlook and the theme. And the Seventh Inning Stretch comes from a lot of questions we’ve been getting from our clients. You know, what we’ve been hearing, especially late last year, is that this economic cycle has been ongoing since 2020, so we’re now moving into the sixth year. The bull market or this uptrend just turned three years old. And the question is, is there still room to go? And as we look at the data, you know, economic expansions just don’t die of old age. And when we look at prior bull markets that have had a third-year anniversary, all of them have seen gains in the fourth year. That certainly doesn’t guarantee gains. But again, we’re going to dig deeper into this. But the weight of the evidence as a starting point suggests there is still some room left for both the economy and the stock market to move forward.
Sabrina Bowens-Richard
So we’re saying we’ve been in this economic expansion for a while. Economic expansions don’t die just due to old age. And the bull market still has some legs. So just given that backdrop, just walk us through some of the sub-themes for the year.
Keith Lerner
Sure. And this is where we’re going to spend a lot of our time today, kind of diving through. But as a big-picture theme for the economy, Mike’s going to walk through our view that we’re going to see an uptick in the US economy. For the equity market, we still think the bull market deserves the benefit of the doubt. That doesn’t mean there’s not going to be some hiccups or some pullbacks. But we still want to give the uptrend the benefit of the doubt. And then you’re going to hear from Chip talking about fixed income as being a consistent hitter. Much like last year, it had very solid returns. And we’ll talk about our expectation for this year. And I also want to say, as we’re thinking about the outlook, we’re thinking about the themes, this is all built upon our weight of the evidence framework. And I’d also say that what’s important for investors and our clients to understand is, this is our starting point. We certainly expect, over the year, as new information comes in, we will adjust and adapt. And that’s what our investors should expect from us.
Sabrina Bowens-Richard
Yeah. So – as we - given that backdrop, as we look to 2026, what’s our starting view on how we’re positioning portfolios?
Keith Lerner
Good. And again, I love the word you say, like, what is our starting point. Because just like last year, we think there will be tactical opportunities, both on the upside and maybe also to mitigate some risk as well. So as a starting point, because of this economic uptick, because of the resiliency in corporate earnings, we have a modest bias for equities relative to fixed income and cash. Within the global markets, the first thing to say is we have a global bull market. And this is different than a couple years ago where it was kind of like, why am I investing in anything but the S&P? So we still have a modest US bias overall. But I would say, over the last 15 months or so, we have been gradually increasing our international exposure. It’s more of a neutral exposure for international develop (phon). We have emerging markets on upgrade watch, something that’s certainly acting better. We’re seeing some better trends there. Then also, what we started to see last year is this market boring out, and we’re seeing some sharper rotations. So last year, towards the middle of the year, we upgraded our view of small caps after being more negative. So small caps are actually off to a really good year, and they should also benefit if we see a bit of the uptick in the economy and somewhat lower interest rates, which is, again, our base-case outlook. Chip is going to dive more into the fixed income side. At this point, we’re really focused on what we call high quality, think treasuries. And we think, especially as we’re in a midterm election year, where volatility tends to perk up, that there will be an investment—there will be a time to lean in more into what we call the credit markets. Again, Chip’s going to go more into that. The other question—and we saw a lot of questions for this livecast—is around gold and so forth. We were positive on gold all last year. We called it the MVP. And the question is, at this point, are we still positive. And our answer is yes. From a portfolio diversification standpoint, we still think it makes sense, at least, to have modest positions.
As we—maybe one last point, Sabrina. We often—and again, this, in the questions we receive, there’s a lot about sector positioning. Over the last year, we’ve been very positive on the AI and technology theme. And from a legacy standpoint, we still like those areas. But as this market bores out, we’re seeing opportunities beyond tech. So it’s not just tech.
So over the last couple of months, we’ve upgraded industrial, something leveraged to the economy. Healthcare, which has been very out of favour the last couple years, we upgraded as well to more attractive. And then over the last month or two, some areas that we were more negative on, materials and energy, we upgraded more to a neutral view, saying there’s some opportunities there as well. And I will say both those areas are acting better as we start out the year.
Sabrina Bowens-Richard
Well, that’s great. So just to reiterate our starting point for portfolios: definitely have an equity bias, US large caps, growth. We’ve added to international; we still see some opportunities there. There’s some other sectors that we’re interested in outside of just technology. And from a fixed income perspective, high-quality fixed income seems to be the place to be right now.
As we think about the starting point for our positioning, we’re already just a couple of weeks into the year, and we’ve already gotten some curveballs.
Keith Lerner
Yeah.
Sabrina Bowens-Richard
We’ve got the Venezuela shift. We’ve got the Fed investigation. How is that impacting how we’re positioning portfolios?
Keith Lerner
It’s a great question. In the outlook, in the letter that I actually wrote, we talked about, every year you have kind of, hey, a framework on what you know, and then you get these curveballs along the way. And we’ve already gotten two of them in the first two weeks of the year.
So specifically, I would just say, big picture, what we’ve seen so far hasn’t really altered our view so far. We’re watching. So I’ll just—I’ll speak a little bit first on the Venezuela side. It definitely has an impact to the energy sector. I think that’s one reason why that sector’s acting somewhat better. So more specific. But more broadly, it’s not a big enough economy to have a big impact on the global economy yet, even though oil and prices matter. But we always ask ourselves, what is that going to do to corporate profits? It’s not going to be a big change. But in the energy sector, there’s some ramifications there. And then we also had this second curveball more recently about a Fed investigation. And so far, the market’s shrugged it off. And staying away from the political side, if the market gets concerned about Fed independence, the way that tends to manifest itself is in the interest rate market, meaning interest rates can start to move up, and inflation expectations can start to move up. So far—again, so far, we’ve only seen a modest reaction in both sides. So if we started to see inflation expectations and interest rates move up in a meaningful way, that would likely have us become somewhat more cautious. But we’re not seeing that as yet. But obviously, it’s very fluid at this point.
Sabrina Bowens-Richard
Okay. So the situation hasn’t really had an impact on the markets just yet. I want to turn to you, Mike. Just from an economic standpoint, how do you see this situation in Venezuela sort of playing out there?
Mike Skordeles — Head of US Economics, Truist Wealth
So there’s a lot of pieces there. Probably in the near term, for most investors, it raises more questions than it answers. But to Keith’s point, it’s not a big player on the global stage. It’s very important for Venezuela but, for the US economy, not so much. We don’t trade a whole lot, and that what we do tends to be crude oil. As far as the size of their economy, it’s less than 0.1 percent of the global economy, again, not a big player. Even if it doubles or triples or at 10 times, it’s not enough to move the overall needle. That’s not to say it doesn’t matter. But whether it’s the energy investments that Keith mentioned, these are likely going to be underpinned by political stability on the ground in Venezuela. That’s going to take time. Yes. Our military’s involved. How long that plays out, this is likely to be a longer-term story than something that’s just the next couple of months, and it’s off to the races, and all these US companies or global energy countries companies go into the country. It’s going to take time.
So this is a long story that’s going to unfold over time. It’s just not enough in the immediate term to really move the needle for the US.
Sabrina Bowens-Richard
So I hear you both saying no immediate and direct impact yet. Could be a long season—
Mike Skordeles
Definitely.
Sabrina Bowens-Richard
—for the Venezuela situation.
Keith Lerner
Yeah. The only other—I would say some minimal—
Sabrina Bowens-Richard
Some—
Keith Lerner
—and maybe more—
Mike Skordeles
Yeah.
Sabrina Bowens-Richard
Yeah.
Keith Lerner
—selective, but, yeah, to Mike’s point, overall—
Sabrina Bowens-Richard
Yeah.
Keith Lerner
it’s not a significant—
Sabrina Bowens-Richard
Change. Yeah.
Mike Skordeles
And on the margin, for some of these companies, it may make a meaningful difference for earnings and what have you in the future because there is a large potential there in Venezuela, but not enough in the immediate term.
Sabrina Bowens-Richard
Immediate term. All right. Well, I want to shift to the US economy. Our theme there is an uptick.
So, Mike, can you walk us through what’s behind that theme?
Mike Skordeles
Yeah. So about 2 percent growth in 2025; we expect an uptick, not a big acceleration.
There’s four catalysts there. Very quickly, those catalysts: there’s tax incentives; there’s Fed rate cuts—not a big move there, but Fed rate cuts; tariff stability; and continued AI and tech-led CapEx investment that’s going to happen. Those are the four factors. But let me kind of show you the illustration there as to why those pieces matter. On the tax side, especially for personal income tax, those refunds are going to be up about 44 percent from 2025 to 2026. That’s going to hit in the first quarter, beginning of the second quarter. That’s a big boost to the US economy. To put a little perspective on it, it’s about the size of one of the stimmy checks. So it’s a meaningful pop for the US economy.
The second one I mentioned was the Federal Reserve and lowering rates. They’ve been lowering rates. Chip’s going to cover a little bit more about that. Most of it’s already occurred, but they will continue, so directionally – moving- continuing to move lower. It’s not going to be a big boost to the economy because we’ve already seen most of it happen. That said, lowering interest rates will help continue to lower borrowing costs for both consumers and businesses.
The third piece is on the tariff front. Again, you’re not surprising anybody talking about tariffs today, unlike a year ago. So again, there’s stability just from the, it’s known. That said, there are things that are going to happen, including the Supreme Court case. We haven’t gotten resolution there. But again, the take-home point, I think, for investors and from an economic standpoint, is tariffs aren’t going away, even if the Supreme Court does strike down the emergency tariffs that were instituted early in 2025. Most of that has to do with those individual country agreements that were agreed to through the back half of 2025. So again, a little bit of stability there. Again, not perfect clarity. And then last but certainly not least is this big AI investment wave. It wasn’t just a 2025 story. It’s not just a 2026 story. It’s an overarching piece. And to connect the dots to where Keith was talking about it, earnings, very real earnings.
But this is about the investment side. It’s also not just within tech. It’s data centers that are being built. It’s real estate that’s being a part of this as well; construction and industrial production that happens because they’re building some of these machinery and what have you to build buildings and data centers and what have you. So it’s permeating the economy. So that part’s slowly happening and unfolding. Again, it won’t just be a 2026 story.
So that kind of puts a bow on where we think it is. That said, there are challenges that face us. I think that we’re, on balance, going to continue to grow. But we’re hanging around that long-term average. And actually, as far as our base case, it’s probably a little below the long-term average. But again, as far as clients are concerned, that’s roughly going to be hanging around or maybe just a little bit below the long-term average which, again, pre-pandemic, was about 2.4 percent, so close enough.
Sabrina Bowens-Richard
Yeah. I was going to ask you about some of those challenges. So we’ve been in this economic expansion now since 2020. And it sounds like there’s still some room to grow. So what could keep you up at night?
Mike Skordeles
Yeah. So again, Keith talked about resilience and some of these other things. That’s the positive side. We have four catalysts we think are going to help. But we haven’t had a lot of job growth. That’s certainly a concern. It’s not something in the future. It’s currently a concern. The other one is inflation. So, yes, tariffs aren’t sneaking up on anybody. Yes, they’re lower than what was originally announced. That said, we are starting to see tariffs seep into pricing, and that’s keeping inflation elevated. So if we see inflation increase for any reason, not just because of tariffs, that would be a concern. And then last but certainly not least is government dysfunction. We’ve been dealing with this for the better part of two decades. It certainly got more acute since the pandemic. But as a for instance, we had a government shutdown. It was the longest government shutdown. That was resolved in 2025, but it really just kicked the can to the end of this month. So in the next couple weeks, we need to get that resolved. And if they do another kick the can for a couple of months instead of funding the government for the full year, that would have an impact as well. So there’s a number of things. Plus, there could be other curveballs, whether it’s Iran or other things that are not in our base case, that come out of left field.
Keith Lerner
And maybe I’ll just add one other thing. I already mentioned it, but I think a common risk for the equity perspective of the economy, fixed income, is interest rates. Because a lot of times, uncertainty, especially on political change, or we have—later this year, we’ll find out about a new chairman for the Fed, and what does that look like as well. We have different stimulus programs.
If interest rates started to move up in a meaningful way—again, not our base case—but that would be a risk that we’d be—I think would affect all these areas that we look at, and we’re certainly monitoring closely.
Sabrina Bowens-Richard
Yeah. Mike, one of the first things that you said about what could keep you up is the labour market.
Could you just walk us through what some of the underlying trends are there?
Mike Skordeles
Yeah. So the difficulty here is that, especially with the government shutdown, the trend through the back half of the year, if I could sum it up in one word is, sloppy. It’s very sloppy, both because of the shutdown and roughly 1.5 percent of workers, the total workforce, is federal workers that weren’t on the job. And then the ramifications of those people not spending, that’s a piece.
The other one was the delay in government-sourced job numbers and economic data. That’s another kind of double whammy that hit the economy.
That said, we’re starting to normalize and move forward, but we just haven’t had the job growth through the course of 2025. There’s a lot of uncertainty, whether it was the tariffs and then the government shutdown. But what we’re showing you here on this slide, the take-home point is there’s 170 million workers there. We haven’t seen a drop in the number of jobs, although on a month-to-month, we’ve seen some inconsistency there and even had some job losses, partly because of DOGE and some of the federal job losses and some churn within some of the sectors. But the bigger point is, we continue to see wage growth. So wages growing faster than inflation is a big piece, and you have that—and you multiply that wage growth by the number of jobs, the 160 million, that’s way more important than having 75,000 or 100,000 jobs created—new jobs created on a monthly basis. So even if we just have stability and continue to see the wage growth, that, I think, offsets things and maintains the resilience for consumers overall.
Sabrina Bowens-Richard
And—
Keith Lerner
Go ahead, Sabrina.
Sabrina Bowens-Richard
I was going to say, and they represent a huge portion of the economic—
Mike Skordeles
Economy, yeah.
Sabrina Bowens-Richard
Yeah. Yep.
Mike Skordeles
About two-thirds of the economy is—
Keith Lerner
Yep.
Mike Skordeles
—consumer spending, so consumers. And their primary way that they get money—
Sabrina Bowens-Richard
Yeah.
Mike Skordeles
—is wages. So—
Keith Lerner
Right.
Mike Skordeles
—continuing to see that 3.5 percent-plus, 3.8 percent on an annual basis, wage growth, multiplied by 160 million, it’s a big driver.
Sabrina Bowens-Richard
Yeah.
Keith Lerner
I was going to just mention, Mike, you hit on it already, and we talk about this in our strategy meeting. You have to remember last year, like around April, with the tariff uncertainty, the shock of the system, then the government shut down, a lot of companies were frozen. So that’s partly why we’ve had a sloppy environment. Hopefully, we get a little bit more clarity this year. And we also have this tax bill now as well. So maybe that just helps stabilize the situation a little bit more, relative to maybe some of the softer numbers we saw over the last couple of months.
Mike Skordeles
Yeah. And the other important pieces of that as well is we haven’t really seen widespread job loss. Again, there’s some churn between sectors, but we haven’t seen job losses. And when we look at weekly jobless claims or those other things that point to people actually losing jobs, we’re just not seeing those numbers come through. So that’s a positive. And, again, we still think that there’s resilience. That isn’t to say that there aren’t pockets, especially lower-end consumers, that are having trouble. That’s certainly a thing.
Sabrina Bowens-Richard
Yeah.
Mike Skordeles
But overall, big picture, zooming out, the US economy remains resilient. We’re growing right around trend. So again, I think it’s a pretty good backdrop, especially when you layer on those four catalysts that I mentioned.
Sabrina Bowens-Richard
Yeah. And so just given that backdrop, I want to bring Chip into the conversation. We talked about the Fed lowering interest rates late last year. What’s your view on how the Fed could move this year?
Chip Hughey — Managing Director Fixed Income, Truist Wealth
Sure. Yeah. Right now, the fed funds rate is in a target range between 3.5 percent and 3.75 percent. Ultimately, we think that the Fed is trying to get the fed funds rate down to about 3 percent this year. So against the backdrop that Mike just laid out—solid growth, bumpy but cooling inflation, slower job growth—that should provide some breathing room for the Fed to deliver a few more rate cuts this year. I think what’s more important to remember is that the Fed has already lowered the fed funds rate by 175 basis points over the course of the past two years. So a lot of that heavy lifting now is kind of in the rearview mirror. But what they have already done over the course of the past two years, that’s still kind of seeping into the economy. And we do think that we’ll see some mild positive effects from that here in 2026, which Mike alluded to.
Sabrina Bowens-Richard
And I guess, just taking a step back more broadly, how do you see longer-term rates being affected by this?
Chip Hughey
Sure. So we expect kind of intermediate and longer-dated interest rates or yields to fall modestly this year. We think the 10-year probably has scope to fall to roughly 3.75 or so from where it is today. So what are we talking about there? About 40 basis points lower than where we are today, so not drastically lower, but we do think that the trend, even there, is lower. But we expect those longer rates to act a little bit stickier. We use that word a lot, sticky. Right?
And so why is that? Right now, what we’re seeing is investors want greater compensation, higher yields for things like the ongoing policy uncertainty, like the ongoing geopolitical risks that we’re seeing, and also compensation for the fact that the US government is issuing a lot of debt last year and again this year. So this is hampering declines in yields there, and we think that’s still going to be the case over the course of the near term. So let’s put this all together, then. The front end of the yield curve, call it the first two, three years of maturity, very sensitive to what the Fed is doing with interest rates. We think that comes down in a more pronounced way. And we do think that out longer, out beyond that three-year range, that those yields do come down, just not to the degree they probably will in the front end of the curve. So what does that mean? It means that we think that the curve will continue a trend we’ve seen for the better part of two years, which is a steepening trend.
Sabrina Bowens-Richard
And so with this steepening curve, does it have any implications for mortgage rates? We get a lot of questions from clients about that.
Chip Hughey
We do get a lot of questions about that. So the highest correlation to the 30-year mortgage rates is actually the 10-year US Treasury yield. And so in this context, with this outlook, yes, there’ll be some relief there, some help with mortgage rates moving down, but probably to a relatively modest degree, right, in the 25—
Sabrina Bowens-Richard
Yeah.
Chip Hughey
—50-basis-point range. So, helpful, but not a tremendous difference.
Sabrina Bowens-Richard
So just to wrap everything up around the economic discussion, the expansion is resilient. Sounds like there’s still some room to go. The game is not over. There are some tailwinds that could benefit the consumer as well as corporations. Interest rates could come down some, but we’ve already seen a huge lift from that.
Chip Hughey
That’s right.
Sabrina Bowens-Richard
So I want to use that economic backdrop now and kind of pivot to the markets. Keith, we know the bull market is three years old. Our theme for this year is, the bull still deserves the benefit of the doubt. Can you just kind of walk us through where that optimism comes from?
Keith Lerner
Sure. And it’s a theme we’ve actually been speaking about from the last year. And again, no one has a crystal ball. Right? A lot of people try to forecast where the market’s going to close by the end of the year. Our framework is really looking at the evidence, trying to get the evidence on our side to make higher-probability decisions. And that weight of the evidence framework, it starts with history, it layers on the economic cycle, fundamentals, market signals as well. So we put that all together, and I’ll walk you through how we kind of came up with our view for the year. So the punch line up front is the data suggests the potential for high single-digit, low double-digit gains. Again, not a prediction per se, but that’s what the data suggests, and I think it’s reasonable. And so the question is, what’s behind that? And we’ve talked about some of this already.
The first thing is history. When we’ve had a third-year anniversary for a bull market—we’ve had seven of them—all of them have seen gains the next year. The average return is 15 percent. So that’s nice, but it’s only seven years in the sample; not big. So the next thing we look at is, okay, well, the Fed—we just talked about the Fed. The Fed has just recently cut rates in December when the stock market was close to all-time highs. What does that mean? We can test that out. Well, a year later, the market has been up more than 90 percent of the time. So that’s another good omen when you think about the weight of the evidence. Okay. So those two things are positive factors. I think one that’s maybe a little bit less positive is, we can isolate how does the stock market tend to act during midterm election years. And there, we tend to see more moderate gains and also deeper pullbacks during the year, again, just a tendency as well. So I think that’s something to keep in mind because you also have a lot of change. It’s like we talked about curveballs coming out. There’s probably going to be more curveballs, and that will probably be related to the political side as well. But then the last factor, turning more from history to fundamentals, even though the market valuations are still somewhat rich, the expectations is the earnings for the market will see between 10 percent to 15 percent earnings growth over the next year. And just like the prior year, we think that will be the key driver of market returns. We put that all together. There’s certainly risk, but the way the evidence suggests there’s still some upside, and that’s why we think the bull market still deserves the benefit of the doubt.
Sabrina Bowens-Richard
Yeah. And so I just want to touch briefly on corporate earnings. You’ve mentioned in the past about them being the North Star.
Keith Lerner
Yeah.
Sabrina Bowens-Richard
Where do we see some of that leadership coming from?
Keith Lerner
Yeah. Maybe, if you don’t mind, Sabrina, I just want to talk about that North Star—
Sabrina Bowens-Richard
Yeah.
Keith Lerner
—reference. Because last year, we have to think about, there were so many news headlines and things for people to want to sell. And the focus on it—we call it the carousel of current concerns. Like as one concern recedes, what happens? Another one comes up, and we have this constant battle. And if you zoom out and say, well, Keith, what was the most important thing to drive markets last year, it was corporate profits and the resiliency of those corporate profits. I love this chart. We show it often in our Market Navigator publication. It looks at the stock market, the S&P 500 in the dark-purple line, and then earnings in blue. And what do you see? They’re moving together. Right? So the North Star, in our view, is corporate profits.
And now answering your question more directly: what’s driving that. Well, over the last—most of last year, it was the AI theme, tech, communication services. But what we really started to see late last year is it borne out, meaning, we’re starting to see small-cap earnings up, mid-cap earnings up, the average stock seeing earnings up. We’re seeing better action out of the industrials and materials. And also, more globally, we’re starting to see better earning trends as well.And I will say, you mentioned to me what’s the key driver of our outlook, but also the risk, this is it. So this is where we’re really keenly focused for the market as we move deeper into this year. And again, based on the uptick that Mike talked about in the economy, we think earnings will deliver and, again, be the key driver.
Sabrina Bowens-Richard
So we’re sort of seeing a broadening out of earnings growth across different sectors and countries. We get a lot of questions about technology. You mentioned valuations being rich. Folks are asking, are we in a bubble?
Keith Lerner
Yeah.
Sabrina Bowens-Richard
What’s our view on that?
Keith Lerner
Yeah. Well, the view up front is our work or the evidence suggests we’re not in a bubble. I started my career in the mid-’90s, and I know what a bubble feels like. And it feels a little bit different now, but instead of saying how I feel, like we can quantify this. And we just developed a chart, and I personally am biased, but I love this chart because it really speaks volumes. So let me help the audience understand, what are we looking at. Each bar on this chart shows the two-year change or the two-year cumulative change in valuations or the forward PE for the technology sector. Right? So on this chart, if you go all the way to the left, you see a big bar that stands out. That was in the late ‘90s. The valuation or the PE for that technology sector during the bubble period rose 179 percent. Let that soak in for a second; 179 percent. What does that mean? That means that prices were moving up, or earnings were not keeping up, and that was meaning there was euphoria. Prices got disconnected from fundamentals.
What are we seeing today? Well, we’re not seeing a 179 percent increase in the valuations over the last two years. This is—I mean, I think this will really be a surprise to a lot of investors. The technology sector’s valuation is unchanged; unchanged relative to 179 percent.
Now, I will say that doesn’t mean that there can’t be a rotation out of tech. I mean, it doesn’t mean that it can’t underperform. And we still like a longer term. But I will say that, to us, to answer your question, we don’t see a bubble, not anywhere close to what we saw in the late ’90s.
Sabrina Bowens-Richard
Yeah. And clearly, the chart doesn’t show that.
Keith Lerner
Yeah.
Sabrina Bowens-Richard
So I want to shift to international. We talked about it a little bit earlier today. But international markets outperformed the US by a huge margin last year.
Keith Lerner
Yeah.
Sabrina Bowens-Richard
Do we expect to see those same types of gains this year?
Keith Lerner
Yeah. Well, I would say the first thing is kind of our point. I think global diversification is really key for this year. But I also want to provide a little bit of perspective around international because it was a sharp move. And like you said, it outperformed a lot last year, both developed international and emerging markets. But if you zoom out a little bit, you also have to remember the year before, international underperformed by the most since the 1990s. So international was up only about 4 percent versus I think it was about 30 percent for the S&P. So the next chart that we’re looking at is over the last five years. If you zoom out even more, you say, hey, international had a big year. But if you zoom out, the US is still outperforming by a wide margin. It’s up almost 100 percent, about double of developed international and more than triple the emerging markets. I think what happened last year—and this is important—is we came into the year after the elections; there was a lot of discussion about US exceptionalism. And really, people were really excited about the US, and the bar for positive surprises for international was really low. So what you saw is a little bit of good news went a long way for international.
Keep in mind, the US, with a return above 16 percent, is above average. So we still had a good year. It’s like we had this snapback rally in international that I think caught most of Wall Street offsides.
Sabrina Bowens-Richard
And what would you say some of the factors were that really drove that?
Keith Lerner
Yeah. What’s interesting, when you dig in and say what was it, I mean, one of it was it was the press, so valuations expanded as people gained a little bit more confidence.
And the other big part which is important is the currency. For international developed markets—think about Europe, Japan, the UK—the US dollar weakened by about 10 percent. And if you’re an international investor, you actually had the local market return, plus that currency strength overseas. And so about 10 percent of the outperformance by international was just currency related. If we looked at the local market and just said how did it do without the currencies, international developed only outperformed by about 1 percent. So it wasn’t as much. And the other thing that we look at in our work is earnings. And you can see this chart. It just looks at global earnings from the US, Japan, emerging markets. But look at the top one. It’s still the US. The US still has the strongest earnings trend. That’s probably why we still have a modest bias there. But I will say you are seeing good trends out of Japan.
And also, we talked about the emerging markets being on upgrade. You’ve seen emerging markets actually start to move up as well. So that goes back to my point, is at this point, we still have a modest US bias. But unlike, I would say, the last five years, where it was basically, hey, the US and everything is thrilling (phon), you’re having broader participation and, I think, again, global diversification is key. And at this point, the last 15 months, we’ve added some to our international. And again, these markets are still on upgrade watch for emerging markets. And I wouldn’t be surprised if we add more over time in some of these markets as well.
Sabrina Bowens-Richard
So it looks like the US earnings are outpacing global markets. Currency was a big factor last year for international stocks. I just want to turn to you, Mike. What are your thoughts on the dollar since the currency was such a huge piece of the international outperformance last year?
Mike Skordeles
Yeah. So the US exceptionalism, this notion that the US is growing faster than the rest of the world, for the most part is largely still in place. But especially when we compare it to places like Europe, barely 1 percent growth. So we’re growing 1.5 percent, almost—a little bit more than that, or versus Japan. When we look at the rate situation—so Chip was talking about rates, our rates are higher than the rest of the world. Those are the positives. Unfortunately, things like Fed independence and other things, geopolitical risk, those erode confidence in the dollar. So again, we saw this 10 percent drop that Keith mentioned. But similar to the story about stocks was, if you zoom out, there was several strong years of the dollar as well. So net-net, we’ve seen this pullback. We think it’s going to stay in this kind of choppy range because of this tension between the strong economy and higher rates factors versus things like Fed independence, the amount of the national debt, and some of these other concerns of geopolitical risk that kind of push and pull. But we don’t think we’re going to get a replay of what we had in 2025. So we’re not going to see a big depreciation of the dollar. We think it’s going to be in this kind of choppy range.
Keith Lerner
I would say, going back to portfolio diversification, I mean, there are risks of both sides. And we also may have a different composition of the Fed later this year. So we’re watching the dollar closely. That also suggests why you want to have diversification with international.
And if we see that dollar, which we expect to be stable, start to break down, that would likely influence us to become, potentially, even potentially more aggressive on adding to the international side. But again, as Michael said, our baseline view is stability for now, but a lot of things to come.
Sabrina Bowens-Richard
So just to recap, history still does show that this bull market has legs. And it sounds like earnings will be a key support for that, and that’s globally. Right? We could see some curveballs, but we expect the upside to still be positive for the year. I want to go to you, Chip, to talk about fixed income and just zoom out a bit. Fixed income had a great year last year.
Chip Hughey
It did.
Sabrina Bowens-Richard
Our theme for this year is a consistent hitter. Can you walk us through what we’re thinking behind that?
Chip Hughey
Sure. Yeah. Let’s start with last year. So in 2025, core fixed income, that’s as measured by the US Aggregate Bond Index, it rallied 7.3 percent. Right? That’s a really solid year. And yes, part of that total return was due to the fact that yields declined. And as yields decline, bond prices go up. Right? So there was some price return component in there. But it was really more of a story about the higher yields and that better income generation that drove those gains. So you fast forward to today. Yes, yields have come down a bit today versus this time last year. But they’re still really elevated relative to the past two decades. So that puts bonds in a really good position to deliver on those two kind of key tenets that investors look for in bond investing, right, to deliver a stable and reliable income stream and the portfolio diversification benefits, right, that portfolio stability.
So that sets the bond market up well, we think, headed into 2026. And that kind of informs that consistent hitter, right, good 2025. We think it’s in a good position right now. I will say that one thing that I think will change in 2026, relative to what we’ve seen lately, we had very, very low interest-rate volatility in the second half of last year, down to historically low levels. And I do think, given some of the risks that we’ve discussed, the headline risks, the evolving nature of the things that we’re talking about, those themes, those narratives, I think that it’s probable that interest rate volatility picks up in the year ahead relative to what we’ve experienced the past, call it, six, seven, eight months.
Sabrina Bowens-Richard
Yeah. We’ve been getting a lot of interest in municipal bonds. Are you seeing any opportunities there?
Chip Hughey
Yeah. We think investment-grade municipals are still really compelling. Absolute yield levels are still very elevated. And also, if you look at the underlying credit fundamentals of the municipal market, they still look really healthy. They look really solid. So I think one thing that’s interesting is that after you take into account the tax advantage of municipal bonds, and you compare them to corporate yields of like-rated corporates, there is actually a yield advantage in municipal bonds over corporates at the moment. That advantage actually grows as you get to kind of the seven-year maturity range and out longer. So there is a compelling yield advantage there. One thing that I think will change—excuse me, that will continue—that we saw in 2025 in the muni market that will continue in 2026, is exceptional amounts of supply. So we set a record last year in data going back to 2003, a blockbuster year for municipal supply that was issued by municipal issuers. I think that you’re going to see another really large year of supply coming in in 2026. So when supply comes in, that tends to create some tactical opportunities to add to municipals at a compelling level. So we’ll certainly—
Sabrina Bowens-Richard
Yeah.
Chip Hughey
—be watching that as well.
Sabrina Bowens-Richard
Yeah. And lastly, we touched on this a little bit earlier, but what are our views on credit?
Chip Hughey
Yeah. So it’s probably helpful to start with credit spreads. It gets thrown around a lot just to kind of, what is credit? So what are credit spreads? So credit spreads are the amount of extra yield offered by corporate bonds when you compare them to US Treasury yields of the same maturity. And right now, credit spreads are very, very tight. It’s very low. That difference is very low, and that is especially true in high-yield corporate. So in the short term, I guess I would summarize it as this, is that, that extra yield pickup right now is not worth it or is in an imbalance with the credit risk or default risk that’s being asked in some of the riskier corners of fixed income. Now, I will say, I think we’re going to see some opportunities where perhaps credit spreads widen. There’s opportunities to upgrade our views there. But for now, especially with high-quality yields being so productive and attractive, we would be patient and focused there until those opportunities arise, which, of course, we would also be communicating.
Sabrina Bowens-Richard
So we had - a last - a good year in fixed income last year; expect a good year this year; attractive starting yields. Interest rate volatility could be at play here. And we’re sticking with high quality but could see some opportunities in credit at some point this year.
Chip Hughey
That’s fair. Yeah. Thank you.
Sabrina Bowens-Richard
So we covered a lot of questions that clients have asked. We only touched on gold, the MVP, briefly.
Keith Lerner
Yeah.
Sabrina Bowens-Richard
Keith, can you just kind of walk us through what our take is on gold?
Keith Lerner
Sure. It’s interesting because we’ve gotten more questions on gold the last couple of months than I can remember in the last 5 or 10—
Sabrina Bowens-Richard
Yeah.
Keith Lerner
—years. And partly because it’s been doing well, and that often attracts attention. So the way we’re looking about gold, again, yes, we still think it’s upside, but we’re thinking more from the portfolio. And I mentioned this earlier, but the chart that we’re looking at looks at how has gold performed when both stocks and bonds are down for the day. Right? Because what are you looking for, for diversification? You’re looking for things that go up when things go down or vice versa. And what this chart shows is, on over 50 percent of the days last year, when both the stock market and the bond market were down, gold was up. So from a portfolio diversification standpoint, we think it makes sense. Now there are fundamental reasons, central bank buying, maybe some diversification away from the US, geopolitical risk as well. So that also supports it, and the underlying trend is still positive. Just like last year, you’ll probably see some sharp pullbacks along the way, but the underlying trend is still positive.
I will say we’re also getting other questions on, like, things like silver. And I would say, I mean, it’s gone basically straight up, and they tend to move somewhat more. But it’s almost like it’s gold on super octane. And I would say, for the portfolio standpoint, to us, as a diversifier, not necessarily the most upside. We think gold, it makes sense.
Sabrina Bowens-Richard
So I think you all laid out a really good base case for our outlook for the economy and for the markets. Keith, I’m going to turn to you and ask, what are some of the risks to these views overall?
Keith Lerner
Yeah. And I know we’ve talked about—I think about the risk a lot, because I think it’s—I think people, we want our investors to know what we’re looking for. We have a base case. We invest on the base case, and we have things in the portfolio that has, again, something going the other way, and also to be alert. So we covered some of the things about interest rates already, if they move. I would also say, with the market valuations being somewhat rich, the economy and earnings need to come through. And so that’s what we’ll be watching. And, again, if earnings are the North Star, if we don’t have those double-digit earnings or the profit margins get squeezed somewhat, that would be a challenge. And then also, as I mentioned, every year, something comes out of left field, and that’s a surprise, and that’s what tends to shock the market. So we obviously can’t predict those, but we’ll be keen to how—what do we do when those come along as well. But I would say, going back to our base case, it seems very reasonable: an uptick in the economy, corporate earnings that move forward, hopefully somewhat of a stable fixed-income market as well, and maybe a little bit support from the Fed, and moderating inflation.
Sabrina Bowens-Richard
Yeah. So we touched on a lot of important themes. Are there any key takeaways that you want to leave our audience with?
Keith Lerner
Yeah. I always think, when we go through this, I mean, we’re covering a lot of—
Sabrina Bowens-Richard
It’s a lot.
Keith Lerner
—details, a lot—and by the way, we have, for those folks that want to dig in deeper, that Market Navigator that we publish will have supporting charts and go even deeper.
But I’m going to maybe just end where we started. Again, the big picture, the Seventh Inning Stretch, it suggests we’re not at the beginning of the cycle, but we’re not necessarily at the end of the cycle either. We still think the economy and the stock market still have upside, even though we certainly expect there to be some hiccups along the way.
Mike talked about this economic uptick supported by four key drivers. I spoke about this bull market that still deserves benefit of the doubt, driven by earnings. And of course, Chip tied in our Seventh Inning Stretch with the consistent hitter theme for fixed income as well.
But I also want to leave our viewers with what you said: we’re starting. This is our starting point. This is our framework. Flexibility will be key. Our investors should expect, as the data evolves, that we’ll shift. And as we always end our letters with, we will continue to follow the weight of the evidence and keep an open mind.
Sabrina Bowens-Richard
So as markets evolve, we will evolve.
Keith Lerner
Yeah. I love the way you said that. Yes.
Sabrina Bowens-Richard
All right. Well, Keith, Mike, Chip, thank you so much for your time today. Thank you for your expertise and your perspective. I know we covered a lot, trying to cover all the bases here.
And we’re hoping that these themes will help you navigate opportunities in 2026 while staying flexible as markets evolve. You can access the charts we’ve shared and explore additional insights in our monthly publication, the Market Navigator, which is available through your advisor.
We encourage you to connect with your Truist team to discuss how these strategies align with your unique goals. Now before you leave, a quick survey will appear on your screen. Your feedback helps us make these sessions even more valuable.
Thank you for trusting Truist Wealth as your partner to help you succeed on your financial journey. We look forward to continuing the conversation during our next livecast in April.