The markets were punched in the face today, with the Dow Jones dropping more than 1000 points, or 3.6 per cent. Does that mean the much anticipated bear market is now upon us or are we still in a bull market?
Yes, we are still in a bull market, says Keith Lerner of Truist/SunTrust, who appeared on CNBC’s “Squawk Alley” today to talk about the market’s reaction to the ongoing threat of the corona virus.
“From our perspective back in late January we downgraded our near term equity outlook to neutral,” Lerner said. Part of this happened before the corona virus. We had stocks at a cycle high sentiment that was stretched and we’ve gone over six months without a normal correction, You lay on the corona virus, which provides more uncertainty, and we think the risk reward near term remains mixed on it. So, from our perspective, what does that mean? That means, maybe, you know, bringing equity allocations that have run up quite a bit back to target, maybe a little bit of past and some of our more tactical portfolios late last year, we had a little bit of gold. Longer term we still think the bull market trend is intact. But we shut down the second biggest largest second largest economy in the world. It’s gonna have some impact.”
When asked about corona virus concerns running into another big issue affecting the markets -the US election- Lerner said he would need a bigger correction than this to be worried.
“We always work in an area of uncertainty, it is there in some degree and was priced into the market,” he said. “I think you bring up a really valid point, the election side right now, I think the markets perception -not from a political view, just the market perception- is that Trump is very likely to get reelected. As we move towards knowing who the Democratic nomination is, I think that thesis will be tested, as far as if it’s going to be Sanders or someone else. That will inject volatility in the market, and probably a pullback, which we think will be an opportunity. But again, if you look in the S&P Today, we’re still trading above where we went December 31 valuations still haven’t corrected that much. Sentiment is just starting to correct right now so we will look for a deeper pullback set the beginning more extreme before we think it’s time to step in and maybe the political side will will help that. But so far right now we still think we’re kind of in a mix near term risk reward situation.”
Asked whether the markets are interpreting recent strength from Bernie Sanders as likely to aid in a Trump win, Lerner said we could be in for a bit of a roller coaster, at least from a press perspective.
“I’m seeing a Bernie Sanders nomination predictions go up,” he noted. “Obviously relection prediction odds have also gone up. Rightly or wrongly, that’s what the prediction markets are saying. I think what could go wrong is again that at some point, you will see a shift, let’s see what the Democratic side is going to do to gain votes or how it can seem more likely of getting into the White House. And then also about Congress as a whole. We’re not a 60-40 country. We’re closer to a 51-49, and the confidence in reelection for Trump is going to be tested, in our view. Again, not from a political standpoint, but a market standpoint. So that’s one of the things that as we get closer, you’re going to see that really will move headlines from day to day.”