Oscarlyn Elder — Head of Investment Management, Senior Managing Director, Truist Wealth
Hello, and welcome to Truist Wealth’s Economic and Market Insights Quarterly Livecast. Thank you for joining us today.
I’m Oscarlyn Elder, Head of Investment Management. In my new role, my team helps high-net worth and ultra-high-net worth clients address their long-term financial goals by delivering tailored portfolio strategies.
I’m excited to work with over 100 investment professionals who have an unwavering commitment to client investment outcomes.
Joining me is Keith Lerner, Chief Investment Officer and Chief Market Strategist. Keith and his team guide Truist advisors and clients through all types of market environments. They provide timely investment advice with the objective of helping clients achieve their long-term wealth goals. His work is highlighted regularly in the financial press, and you’ll often see him on CNBC, Bloomberg TV, and Yahoo Finance.
Joining the discussion today is Mike Skordeles, Head of US Economics. He’s responsible for analyzing US and global economies and financial markets.
Chip Hughey, Managing Director of Fixed Income, also joins us today. Chip’s responsible for our analysis of fixed income markets and leads our fixed income guidance.
Both Mike and Chip are seasoned investment strategists and appear frequently in the media.
Now let’s turn to the markets and the economy.
Despite a carousel of concerns, including the government shutdown, inflation scares, tariffs, and a complex geopolitical environment, global markets have held on to strong gains year to date.
The S&P 500 is up about 15 percent, and the MSCI All-Country World Index is up about 19 percent year to date. Both have posted solid returns.
The bull market recently crossed the three-year mark, and in September, the Fed reengaged in an easing cycle, with a 25-basis points move lower on the federal funds rate.
The 10-year Treasury yield is hovering around 4 percent, down from its highs earlier in the year.
And the US economy continues to muddle through, marked by resilient consumers, but also while experiencing negative employment data revisions.
We’re getting fresh reports on public companies’ earnings as the third quarter earnings season really begins to ramp up.
The backdrop, as always, continues to evolve.
We have a full agenda today, and we’re going to focus on the key takeaways and the meaningful insights to help you navigate the current environment with confidence.
If you want to go more in-depth on a specific topic, we encourage you to connect with your advisor for a conversation and to also request the full market navigator.
Today, the title of our livecast is, Bull Still Charging Despite the Broken Glass.
At a high level, Keith, would you talk to us about how you’re using our weight-of-the-evidence approach to assess the current market environment?
Keith Lerner — Chief Investment Officer and Chief Market Strategist, Truist Wealth
Certainly. And as always, Oscarlyn, great to be with you and great to be back with Mike and Chip.
There’s a lot going on. You mentioned the carousel of concerns, and despite all these carousel of concerns, it’s been a pretty good year, as you highlighted, both in the equity markets, US markets, global markets, and the fixed income markets are doing well also despite all these different headlines.
So the punchline up front, before I get into the weight of the evidence, is our main takeaway at this point is the bull market continues to deserve the benefit of the doubt. Doesn’t mean there’s not going to be any hiccups along the way, but the primary trend is still in force.
As we come to that conclusion, we really do lean on this weight-of-the-evidence approach. And just to reacquaint our viewers, it’s really four buckets that we’re looking at, right, from a high level.
One is, what’s the historical view of what’s similar and different relative to past cycles? Then we overlay the economy: should we be on offence or defence? Mike’s going to walk more about where we are in the economic cycle.
From there, we want to look at the fundamentals of the market. What are earning trends? What are valuations? What’s embedded?
And then lastly, we bring in market signals. Our approach is really to stay on the primary trend. We want to cut through the noise and really focus on that primary trend.
And then we also look at extremes in sentiment that could be actually used to be opportunistic.
So, again, looking at that kind of framework and bringing today’s environment to light, from a historical analysis, you mentioned the bull market just turned three. Well, when we go back to 1950, we’ve seen 10 bull markets; 7 of those had a third-year anniversary.
As a starting point, when we look back at the third year of a bull market, after you have that anniversary, a year later, you’ve had gains in all circumstances. It’s only seven periods.
Oscarlyn Elder
Right. Small sample
Keith Lerner
Small sample. But we know that, as we talk about, bull markets don’t just die of age.
To be fair, the other thing we notice is we’ve got a long period without any type of setback. We haven’t seen a setback since April. So, you certainly expect some volatility or some downside along the way. But that primary trend is still positive.
Next, we look at the business cycle. We talked about kind of a muddle through. Mike’s going to talk about why we expect an uptick into next year.
So that’s still supportive of the overall economy. That economy should then flow into earnings, the other part of our analysis, the fundamental analysis.
A lot of questions. The market is richly valued. It is. And the expectations are high. So the key, the North Star for this bull market remains earnings. The good news, earnings are still moving higher. And we expect that to continue.
And then lastly, as I mentioned, market signals. The primary market trend is still positive, not only in the US. We have 90 percent plus of global markets in uptrend. So, the rally is somewhat broad.
And then, maybe the last thing is, we talk about this weight-of-the-evidence approach, so we’ll continue to follow that. And we always challenge ourselves to keep an open mind as the data evolves. But as we see it now, the bull market still deserves the benefit of the doubt.
Oscarlyn Elder
So, bull market still getting the benefit of the doubt. You’ve stepped us through your four areas that you look at.
How does that translate into how we’re tactically positioning our portfolios currently? Or what you’re recommending there?
Keith Lerner
Sure. And the way to think about this, too, we’re looking at this at a 50,000-foot level. Our advisors will then customize what makes sense for our clients.
But big picture, we’re saying from our stocks, bonds, cash, like, be more in line with long-term targets. From there on the global equity side, we’re still Team USA. We’ve been for a long time.
Now, as I mentioned, we’re seeing a global rally. And this year, international markets are outperforming. But that’s after significant underperformance the last couple years. So we’ll talk more about that later on.
So we’re still Team USA. We’re still with a large-cap focus, which is dominated by that tech and AI theme. We have a growth-style tilt. And I will just say up front, every bull market has a key theme. The key theme of this bull market remains AI and tech.
On the fixed income side, fixed income, as I mentioned, is having a healthy year. We’re still focused on high quality, waiting for an opportunity, for some better opportunities in credit, which Chip will get into.
And then gold, which has really become into vogue more recently. We’ve been positive on gold all year long. On a short-term basis, we flagged last week that we thought that the risk-reward was becoming somewhat less compelling. But structurally, we’re still positive. But on a short-term basis, we think there’s likely this kind of corrective phase that we just started to see likely has a bit further to go.
Oscarlyn Elder
With those two views, kind of our overall assessment of the market and then our tactical positioning, let me turn now and, Mike, bring you into the conversation. And let’s talk about the economy, if you will.
And so, Mike, what I’d like you to do is talk to us about your expectations for growth the rest of the year.
And then also, what are we thinking about growth, real growth in 2026?
Mike Skordeles — Head of US Economics, Truist Wealth
Yeah. So, again, great to be with everybody.
As we move through the balance of the year, it’s been rather this muddle through. It’s been rather sloppy. There’s been a lot of puts and takes and distortions in a lot of the data. We had pull-forwards in freight and other things that happened earlier in the year. We’ve also had the jobs numbers that you mentioned had some negative revisions there, and it’s been rather sloppy.
We think that that stabilizes here through the back half of 2025. But expect an uptick as we move into 2026.
There’s three primary reasons why we think there’s that uptick.
The first is the tax changes. I’ll talk a little bit more about that in a minute. The other one is essentially a stabilization in the tariff regime. And then the third one is modestly lower rates from the Federal Reserve.
So, put those three together, it really does point towards an uptick as we move into 2026.
But zooming out a little bit, that call it 2.2 percent growth, that’s roughly a little bit below where we were pre pandemic as far as the longer-term average.
So it’s better than we did in 2025, but it’s not a big party as we move into 2026. But it is incrementally better, and it is an uptick. And I do think that that’s a positive.
Oscarlyn Elder
Yeah, absolutely. Certainly, more growth is better than less growth.
Mike Skordeles
Absolutely.
Oscarlyn Elder
So, that’s part of the positive story for ‘26.
Let’s zoom in for a minute to the consumer, because the consumer is a key piece, ultimately, of the outlook.
What is the state of the consumer?
Mike Skordeles
Yeah. So the consumer has actually been adapting to a lot of these changes, much as businesses have. And, again, the consumer is the key piece of the overall economy. It is two-thirds of overall growth. So, if the consumer is not working, the economy is going to have a problem.
But as this slide is pointing out, and as the kids would call it, the cheat code here is the yellow line. So this is the total number of jobs in the US. It is an indexed view.
But these four indicators, when you look at them, give a real quick, if you will, snapshot of what’s going on. And it’s easy to see, well, there’s a recession when all four of the indicators are moving downward. And we’re not seeing that.
We’re seeing a healthy sort of setup. But again, back to jobs. We’ve had continued job growth. But, ultimately, that job is the main way that consumers get their income. So that’s the grey line—or, I’m sorry, the blue line, which is real personal incomes, real meaning inflation adjusted.
After you get that income, you spend it. That’s real consumer spending. So again, inflation adjusted. And after you spend those things, they have to make it. So, industrial production.
But it is all predicated on that yellow line. So it is, ultimately, all about jobs.
That’s not to say that there aren’t issues in parts of the income spectrum, particularly lower-income folks that are getting hit with inflation. But overall, wages are still growing faster than inflation for all employees. And that’s a positive, on top of those three points that I mentioned earlier: the tax changes; essentially, a settling down, a stabilization in that tariff regime; and then modestly lower rates from the Fed.
Oscarlyn Elder
So, within our outlook, we’ve been in—let me talk about the current state for a moment—this low-hire, low-fire state. And that’s kind of what you’re demonstrating with the line on this particular graph.
I’m assuming your expectation is that that lifts or improves to be part of kind of the growth, incremental growth that we’re seeing in ’26?
Mike Skordeles
Yeah. So we really haven’t seen the stimulus come through, especially from the tax bill.
Very quickly, on the personal side, they didn’t adjust—the IRS didn’t adjust the withholding tables for people. So, what it means is people have to wait until they file their taxes for 2025, which happens in the first quarter of 2026.
But it will be a sizable shot in the arm for the economy and for individual consumers by getting much larger tax returns—refunds, in the first quarter. That’s one side.
The other side is, on the business side, things like accelerated depreciation and those sorts of business investment incentives really are starting to kick in now in the fourth quarter, because the IRS had 90 days after the bill was signed in the middle of the summer to come up with the specifics on some of these rules and are just now publishing those sorts of things. So the rubber is now starting to meet the road, and we think that we’re going to pick up momentum as we move forward into 2026.
Again, better than ‘25, not off to the races.
Oscarlyn Elder
Right.
Mike Skordeles
But it is still an uptick in growth, which is definitely a positive.
Oscarlyn Elder
Thank you for sharing that.
Let’s pivot and talk about tariffs. Tariffs have been the word of the year in many ways. I think we’ve talked about them every single livecast this year.
So, how are we thinking about tariffs and their impact over the short-to-intermediate term on the economy?
Mike Skordeles
So, the first piece is that the impact of tariffs really hasn’t been fully felt by the overall economy, and that’s what we’re trying to show with this chart.
So even though the average tariff rate that’s announced is roughly 18, 19 percent, what’s actually being paid is closer to 9 to 10 percent.
And I’ll just zoom in very quickly into Canada as an example. So, Canada, one of our largest trading partners, along with Mexico, those are our two largest trading partners. Coming into the year, about 55 percent of goods that came from Canada to the US were what was known as USMCA compliant, USMCA being the US-Mexico-Canada agreement, the updated NAFTA, where essentially, we had free trade for most goods. That coming into the year was 55 percent.
We’ve had a 35-percentage point move. So now, roughly 90 percent of goods coming from Canada aren’t being tariffed at all. So even though the stated rate is 35 percent on most Canadian goods, most of them aren’t getting the tariff.
So that blended tariff rate, not just for Canada and Mexico, but a lot of other countries, and the agreement with the EU and others brings down the what’s being paid versus what the stated rate.
Now I will say, your mileage may vary based on what you’re buying. So if you are buying goods from China, the tariff is going to be considerably higher.
Additionally, if you’re buying steel and aluminum, as a for instance, even from Canada and Mexico, it is going to hit—get a 50 percent tariff.
So various goods, they are going to see those tariff rates considerably higher.
But again, zooming back out a little bit, goods purchases from imports are essentially 10 percent to 11 percent of the overall economy. So it’s not as big of a piece as some would give you that perception.
So again, we were never on the side of tariffs in and of themselves were going to cause a recession. It does slow growth. It is a tax. Those are true statements. But the upend the economy part, not as much. And again, businesses and consumers are continuing to adapt to them.
Oscarlyn Elder
Adjust.
Mike Skordeles
Yeah. But as we move forward, we are starting to see more of those tariff impacts come through, but they’re not nearly as bad as advertised.
Oscarlyn Elder
As been predicted.
Keith Lerner
That’s why I’ll just also point out, a lot of times the market will focus on one thing by itself, like tariffs. And, Mike, you already mentioned too, the tax bill. There’s an offset from the tax bill because some of the incentives as well.
So as we think about the overall economy, there may be some negative impacts, but there’s also offsets from other areas as well.
And I think to your point is why we’ve said this isn’t fatal as a whole.
Mike Skordeles
Yeah. And it is a key point to understand that only looking at the tariffs isn’t really a holistic view. You got to look at all the other things that are happening, including currencies and other things. So trade is a more complex sort of thing than just looking at tariffs alone.
Oscarlyn Elder
Mike, is the lower-than-expected effective tariff rate part of the reason, or the main part of the reason why we haven’t seen inflation perhaps spike in the way that had been expected by some folks?
Mike Skordeles
The quick answer is yes. The other piece is with this on-again, off-again tariff regime, a lot of companies—and I’ll just focus in on the auto industry as a for instance—not knowing which ones are going to be permanent and which ones aren’t—there’s also a pending case before the Supreme Court—that companies said, we don’t necessarily want to raise our prices because that will impact sales in the immediate. And if they’re not going to be permanent, we don’t want to change consumer behaviour.
So they’re essentially eating some of it. So some of it is being eaten. Some of it is because the rate that’s actually being charged is lower than was advertised. And then the other pieces that foreign suppliers are also sharing in some of that.
But those dynamics aren’t going to stay the way they are today. And as we move into ‘26, it is going to have an impact on inflation and likely to push things up.
It’s not a 2021–2022 sort of inflation dynamic—
Oscarlyn Elder
Right.
Mike Skordeles
—but the direction of travel of inflation is it is ticking higher.
And again, your mileage may vary. If you’re buying tomatoes, fresh tomatoes in the US, especially those from Mexico, they’re getting a 15 percent tariff and there isn’t a way around it. So those goods are being impacted.
Oscarlyn Elder
You picked my favorite food there. So I love tomatoes, so that’s why I’m paying more at the grocery store on those.
Let’s kind of pivot and also explore another area that’s been in the news every day right now, and that is the government shutdown and the impact of it.
Folks are asking us, clients want to know, does the government shutdown have an impact on our economic outlook. And what do you say to that?
Mike Skordeles
The quick answer is, not really from the overall economy. It mimics a natural disaster, like a hurricane or a bad snowstorm.
But also using that lens, those things tend to be localized in an area or a couple of states. It is going to impact D.C. and Northern Virginia. There’s a high concentration of federal employees. Parts of Texas also have high concentrations of federal employees, as do pockets of California.
Those areas will feel it. The overall economy, not as much.
Keith Lerner
Oscarlyn, maybe I’ll just add two other points. Mike’s pointed this out as well.
When you think about the overall economy, and the federal workers represent less than 2 percent, so it’s very impactful for those workers, but—
Mike Skordeles
Definitely.
Keith Lerner
—maybe less so for the overall economy.
And then from a stock market perspective, we wrote heading into the shutdown a note. It was titled, High Profile, Low Impact. And the reason why we chose that title, we looked back at 20 shutdowns since the ‘70s. And during the actual shutdown, the market has been relatively flat. And the question is, why?
Well, the market knows from history this is how it’s tended to react. But also, going back to the profit story, the question is, does it impair profits on a long-term basis? And the answer is likely not.
So I just want to give that context, why the stock market has held pretty firm. And there’s so many other factors beyond just the shutdown.
Oscarlyn Elder
Basically, investors are looking beyond the immediate and assuming this gets settled and we go back to business as usual at some point, or close to usual.
Keith Lerner
Yes.
Oscarlyn Elder
Yeah.
Mike Skordeles
Although the longer it drags on, it definitely has an impact.
Oscarlyn Elder
It has more.
Mike Skordeles
The other thing that we didn’t talk about is the lack of government-sourced data.
Oscarlyn Elder
Right.
Mike Skordeles
Now, we’ve talked about many times in different publications and even on this livecast about the importance of that data. Is it perfect? No.
That said, in many cases, the government-sourced data is much more robust, much more comprehensive than any other source that we can get, private or otherwise.
The other thing, too, is just from the—Keith talked about the weight of the evidence. From the economic view, it’s more like a mosaic. We get many pieces from different places. Those government-sourced data pieces are some of the larger ones. Not having them definitely hampers our view of the economy.
That said, as a for instance, weekly jobless claims, we’re essentially making a synthetic view because all 50 states are still reporting those numbers. So we’re getting a view into that. We’re not getting the final tabulation the way we normally would, but we still have a view into, hey, weekly jobless claims are doing this.
And continuing claims, those are the people that are continuing to get unemployment benefits, we’ve got a view into those numbers, and they actually haven’t moved all that much.
So, it’s an incomplete picture, but we still have a pretty good picture on the economy.
Oscarlyn Elder
That’s good perspective to share with folks so that they have a sense of what’s happening there.
And, Chip, let me bring you into the conversation because Mike’s just given us his view of the economic landscape.
How does that view impact how you’re thinking about the Fed and what the Fed is likely to do going forward?
Chip Hughey — Managing Director of Fixed Income, Truist Wealth
Sure. The market is now betting on a Fed rate path that we’ve really been kind of projecting and talking about for a big portion of this year.
So, to start, we do think that the Fed lowers the Fed funds rate again in next week’s meeting by 25 basis points and then kind of continues on this journey towards 3 percent over the next year.
So, what does that mean? We’re talking about the Fed funds rate coming down 100 to 125 basis points from where we are today.
Why do we think 3 percent? What’s magical about that? We think that’s roughly where the Fed believes that the Fed funds rate is in a neutral setting, where the Fed funds rate is neither accelerating, or slowing the economy down.
But, to get there, we do expect the Fed to take a very cautious and gradual path because the reality is the Fed remains caught between its dual mandate of price stability and full employment. So, on the one hand, as Mike said, we’ve got a cooling labour market that supports more cuts, for instance. But we also have a resilient consumer and above-target inflation that supports some patience from the Fed.
So, we do think that they’ll take a gradual approach throughout the next year of lowering the Fed funds rate. But, to your point, with the economy expected to grow slightly below that long-term average pre COVID, that does probably give some breathing room for the Fed to go ahead and continue lowering throughout ‘26.
Oscarlyn Elder
How does that movement to 3 percent, if you will, on the Fed funds rate, how does that get translated?
What do you see as the opportunity, the positioning—
Chip Hughey
Mm-hmm.
Oscarlyn Elder
—for investors who are looking, perhaps, to put money to work on the short term within the fixed-income markets?
Chip Hughey
Right.
Oscarlyn Elder
And then also, how does it impact folks who are looking to borrow, like business owners?
Chip Hughey
Sure. Yeah. I think, so broadly speaking, yields remain really productive when you look at where they are today compared to the past two decades. And that’s really good for investors. I mean, 85 percent of long-term bond returns come from the income that bonds generated.
But I’ll start with kind of talking about the short-dated fixed income.
In the first couple years of the yield curve, those yields are very, very sensitive to what the Fed does with policy rates. So, as the Fed lowers those policy rates, we do expect that to impact several areas for investors. Lower T-bill yields, which have been very high, right, for the past several years. Lower CD rates. We expect to see lower money market rates. Lower rates available in areas like savings accounts. These have been places where it’s been very easy to find really productive yields.
So, we do think that those yields are going to come down. And so, we need to be prepared for that. That is likely to happen over the course of the next year.
But also, there on the flip side of that, this should be a relief to some borrowers as well. And I think where it’s going to show up most pronounced is for borrowing for small businesses. Right? Lending to small businesses should get some relief there.
And then in the household or consumer side, areas like home equity lines of credit likely to get some relief there, too, as the Fed lowers rates. Those are pretty directly correlated to where policy rates are and providing some relief there.
So yields, interest rates, kind of two sides of the same coin.
Oscarlyn Elder
So you’ve talked about the short term and perhaps what to expect there.
Chip Hughey
Right.
Oscarlyn Elder
Let’s talk more about longer-dated fixed income—
Chip Hughey
Mm-hmm.
Oscarlyn Elder
—and your expectations.
And just overall, how does your view translate into advice on positioning?
Chip Hughey
Yeah. Sure. And so, for longer-dated bonds, we do think that yields out there are going to fall. I just—we do not think that they are going to fall as much as those that we just talked about in the first couple—
Oscarlyn Elder
Okay.
Chip Hughey
—three years of the yield curve. So think of them as being a bit stickier.
Oscarlyn Elder
Right.
Chip Hughey
So, why is that? For one, fiscal and trade policy uncertainty has kept yields a bit more elevated in the US. And we think we’ll get some clarity in ‘26, but that’s likely to persist. Right?
Debt and deficit concerns. And this is a global story, not just a US story. But the amount of government borrowing really around the world has kept yields a bit elevated. That’s likely to keep yields a bit stickier.
We still have above-target inflation. That’s an upward yield pressure.
But also, on the positive side, we’ve also got some resilient economic data coming in. That also supports slightly higher or stickier yields.
So, for investors, those yields are likely to stay productive, right, which is a good thing. Right? That’s a good thing for long-term fixed income investing.
Where I think it’s less helpful is probably on the borrowing side, where 30-year mortgage rates, for instance, very highly correlated with long-term US Treasury yields, particularly the 10-year, there’s likely to be some relief there as yields come down modestly or interest rates come down modestly, just not quite as much as it would be compared to the front end of the curve.
Oscarlyn Elder
Okay.
Chip Hughey
So that means we’re neutral. In other words, what that means is, relative to our benchmark, we’re not taking really aggressive bets out in the very, very long reaches of the yield curve, nor are we getting very defensive from an interest rate exposure standpoint and moving completely to the short end. Right? So we’re more in an intermediate setting.
Oscarlyn Elder
In an intermediate setting, kind of neutral to benchmarks, not taking on any intentional interest rate sensitivity type of risk within the portfolio—
Chip Hughey
That’s right.
Oscarlyn Elder
—if possible.
Let’s take that for a moment and then go towards our arc to high quality.
Chip Hughey
Sure.
Oscarlyn Elder
Because you just talked about not taking any intentional, what we call duration—
Chip Hughey
That’s right.
Oscarlyn Elder
—on the investment. We’re trying not to use that word, but it is duration.
Chip Hughey
Right.
Oscarlyn Elder
So, we’re basically neutral to our benchmark.
How are we seeing those maybe bets, if you will, leaning in or leaning out around quality?
Chip Hughey
Right.
Oscarlyn Elder
We’ve had a high-quality orientation in our fixed income portfolio for some time. Where are we in that journey?
Chip Hughey
Right. So we were just talking about interest rate risk—
Oscarlyn Elder
Right.
Chip Hughey
—and now this is really credit risk. Right?
Oscarlyn Elder
Right.
Chip Hughey
That’s exactly right.
So, credit spreads are the yield difference between investment-grade corporate bonds, high-yield corporate bonds versus US Treasury yields. And they recently flirted with the tightest or lowest credit spreads that we’ve seen since the 1990s. Right?
So that means that—two things. One, it’s a positive economic signal. Typically, when we have tight credit spreads, that’s sending a very positive economic signal, confidence in corporate America. But from an investment standpoint, it means that the relative value there is somewhat limited.
So we are emphasizing high quality because, as we discussed, those yields still remain very productive. But we’re waiting for that risk-reward dynamic to improve in the riskier areas of fixed income.
I think that one thing that is important to note is that high yield spreads have actually widened 40 to 50 basis points since about mid September. So we’re watching that. We’re watching that very closely. We don’t think that it fully reflects our current kind of economic reality, but that move is notable, and it’s something that we’re watching closely.
Will that create a tactical opportunity to potentially take on a bit more credit? That’s what we’re monitoring today.
Oscarlyn Elder
I’m going to ask our viewers to stay with us a little bit longer. I know everybody wants to hear our discussion about equities in the market.
We’ve got a longer-than-typical discussion around fixed income today, and we think it’s really important. So if you’re dialling in to talk more about the markets, or to hear more about the markets, give us like four more minutes. And we’re going to get there. But please stay with us.
Chip Hughey
We’ll get through the—
Oscarlyn Elder
We’re going to get through fixed income.
Mike Skordeles
I’m doing part of—
Oscarlyn Elder
But it’s really important.
Chip Hughey
No, you’re—yeah.
Oscarlyn Elder
And part of what I wanted to ask you all about today, specifically like you and Mike, is that there’s been a lot of attention, especially within the private credit market, over the last couple of weeks because of some high-profile bankruptcies. It’s been really a topic on multiple bank earnings calls, but it’s a brewing conversation that’s going on.
And I’m interested in what are you seeing within the marketplace? And what are your expectations?
Chip Hughey
I’ll kind of keep it from a market perspective. What is the market telling us about the situation?
I think that over the course of the past month, as these headlines have come through, it’s really notable that investment-grade credit spreads have not budged. They really haven’t moved. And I think that that signals that the market is interpreting this as more isolated, idiosyncratic events, right, at this point.
Now if there were some widening there, that might suggest that there was concern about some contagion effect, or with something more broad based.
The market is saying, and also and I’ll let Keith speak on this, too, that it appears to be sort of a one-off situation.
Keith Lerner
Yeah, I would just say it’s interesting. The market became so focused on a couple of these bad loans or financials, and the same week that happened, we actually saw earnings reports from the big banks, and they were pretty good. They talked about credit being pretty firm. They talked about a consumer being relatively resilient.
So from our perspective, overall, it appears to be a one-off. I mean, we want to monitor it and make sure that we’re not missing something. But from everything we’re looking at, it’s not an overall trend that should be overly concerning that we still want to watch it.
And what we saw after that initial knee-jerk reaction, markets came back pretty quickly, led by those larger banks.
Chip Hughey
Right.
Mike Skordeles
It’s also a timely reminder that there’s still a credit cycle and that underwriting standards and those sorts of things, they definitely matter. So let’s not forget about the fundamentals of lending money to anybody—
Oscarlyn Elder
Right.
Mike Skordeles
—is that they have to pay it back, but there are going to be bankruptcies. That’s part of the capitalist environment is that some bets, some loans aren’t going to work out.
And so the notion that, yes, these are large bankruptcies, they were major. The one in the auto parts industry was north of $10 billion, yeah, that’s going to leave a mark.
But it does highlight that there’s still a credit cycle at the end of the day.
Oscarlyn Elder
And what I’m hearing from you all, kind of expectations, like right now, economy is growing. We’re expecting it to grow more next year.
Mike Skordeles
Yeah.
Oscarlyn Elder
We’re not seeing evidence of contagion, or anything like that. And we experience—we should be experiencing normal credit cycles.
Mike Skordeles
Exactly. And the other point is that, especially relative to the great financial crisis 15-plus years ago—
Oscarlyn Elder
Right.
Mike Skordeles
—the regulatory environments vary differently. Things like loan loss reserves and those bank earnings that Keith was talking about, yeah, we’ve got a pretty good look into those things. They’re holding on to a lot more reserves to make sure that if there are, and they will happen—there are bankruptcies and other things that happen from a loan loss perspective—that banks are well fortified to, as a whole, to do that.
Oscarlyn Elder
Yeah. The distribution of credit risk generally is very different in today’s world than it was—
Mike Skordeles
Than it was—
Oscarlyn Elder
—during the great financial crisis.
Mike Skordeles
—15 years ago. Exactly.
Oscarlyn Elder
Absolutely. All right.
One more question for you, Chip.
Chip Hughey
Okay.
Oscarlyn Elder
A lot of the folks who are watching today have municipal bonds in their portfolio.
Chip Hughey
Sure.
Oscarlyn Elder
Tell us what’s happening in the muni market.
Chip Hughey
Sure. So I would start with saying that munis had a difficult spring. Yields across the board, they jumped and munis underperformed during that period.
And we actually put a piece out on April 24th that said, at that point, munis looked compelling. It was an opportunity and that they were attractive. And since then, we’ve actually seen the broad muni market actually advance by 6 percent. And they posted their best monthly gains since 2023 back in September. So that performance really came back strongly.
Today, I would say that after that really strong stretch, munis look expensive again. They look, relative to things like US Treasuries and other high-quality fixed income, munis do look relatively expensive.
I think over the next several months, what we’re going to see is the continuation of a ton of municipal supply. We have seen so much muni supply this year, and I think that that is going to continue.
But since they’re at these sort of rich levels, that should help normalize things, keeping that strong issuance going and make them more attractive.
So I would say for new investments right now, we would be patient as far as putting new cash to work in the municipal market because over the next three to six months, I would expect that entry point to look a bit more compelling.
Oscarlyn Elder
And we’ll keep folks updated on what things—
Chip Hughey
Absolutely.
Oscarlyn Elder
—are looking like at our next livecast. But what we hear you saying is, if you have kind of fresh capital out there to put to work, be patient and maybe pick your points.
Chip Hughey
Well said.
Oscarlyn Elder
Okay. All right. Keith, let’s turn back to you. Exactly, we’re going to talk about—and I know you’ve been wanting to talk about the equity market, but I appreciate us taking the time to go through the economics and the fixed income in this environment.
And so let’s dive into market fundamentals. And I think part of what we often hear from clients as we’re out talking to them is that, hey, look, the market is at basically record highs, or near market highs. There’s a lot of uncertainty, which we’ve talked about before. And from time to time, we get some market jitters.
What is really, though, like driving the market in this moment to these new highs?
Keith Lerner
Yeah. Well, I mentioned it at the forefront. It’s earnings. It’s profits. We call that the North Star.
And as I mentioned, there’s a lot of narrative back and forth. But what you’re looking at this chart, it shows the S&P 500 overlaid with forward earning estimates. And you can see as the stock market made an all-time high, so did forward earning estimates as well.
And if you think about it, to kind of keep it somewhat simple, is that over time as the economy grows, that should lead to profit growth, and then companies are worth more.
Now along that path, there’s questions about the economy. There’s questions about how much you pay for those earnings that cause that—things not to be so linear.
But I think this is an important point not only right now, but think about the last five, ten years how much our companies have been through: the pandemic; they’ve been through the highest interest rates, or the fastest rate-hiking cycle we’ve seen since the ‘80s; the highest inflation since the ‘70s; supply chain disruptions. And they continue to adapt.
And what we’re seeing now is not only is the technology earnings really strong, driving what we’re seeing in front of us, but the small-cap companies’ earnings are starting to move up. So it’s starting to broaden that out as well.
And I think that’s really going to be key, especially at a time we do have a market that has high valuations and high expectations, earnings are going to continue, they need to come through. We think they will, but this is what we’re watching closely.
Oscarlyn Elder
I mentioned it at the top of the hour that the bull market had turned three. It had a birthday. Right?
Keith Lerner
Right.
Oscarlyn Elder
I think in October, earlier in October.
Keith Lerner
Yup.
Oscarlyn Elder
So the bull market turned three. Should investors be concerned about a pullback in the market based upon kind of the age of the bull market and just the overall environment?
Keith Lerner
Yeah. So a couple things. I’ll say up front, we really try to focus on being on the right side of the primary trend. And our work, as we mentioned, it’s still up. And then we can look back at bull markets that have a third-year anniversary and say, okay, what tends to happen going forward. And historically, I think I mentioned this earlier, is that when you turn three and a bull market lasts that long, it tends to see gains over the following year.
But I always talk about the admission price to the market and the potential of long-term gains is the pullbacks. And we haven’t had a pullback since April. Believe it or not, we had all that downside volatility back in April, and we haven’t seen a 5 percent pullback for about 120 days.
So I would expect some more hiccups along the way. And even after the bull market turns three, we see 5 percent, 10 percent pullbacks are normal. But we ultimately think we still have more upside.
So the way we’re thinking about that is stick with the primary trend today. If we get deeper pullbacks, based on what our outlook is today, we would be looking at that as an opportunity to lean in more.
Oscarlyn Elder
Yeah. And so as folks think about between now and the end of the year, or now and the next time we talk to them—
Keith Lerner
Yeah.
Oscarlyn Elder
—there should not be surprise if we get a pullback of in that 5 percent to 10 percent range, because that is very normal.
Keith Lerner
Yeah. And that also, it reminds me of a phrase of Peter Lynch, the famous Fidelity manager that basically said, more money has been lost in anticipation of the correction than the correction itself.
So again, I mean, we accept it. We’ll try to be tactical around it. But we still want to stick with that primary trend. And we ultimately think that we’ll be higher a year from now, two years from now. And if things change in the earnings picture, or the economy becomes weaker than we expect, then we’ll shift.
Oscarlyn Elder
The other thing that you said, I think early in your comments, or earlier in our discussion, was that bull markets don’t die of old age. And again, I think folks like look at the age, and they just assume, okay, at some point it’s just old and it’s got to die.
Keith Lerner
Yeah.
Oscarlyn Elder
And you’re saying that’s not the case?
Keith Lerner
Now again, I mean, we’ve had some long bull markets from 2009 to 2020. And, by the way, you can argue that we had a bear market back in April. We were down 19.9 percent. The definition of a bear market is 20 percent. So it’s semantics. We had a pretty good reset.
And I think the main—as we move into next year, as the economy moves forward, the earnings come through, and are we at a stage where things are euphoric yet from the overall market. Our answer at this point is not yet. But these are all things that we’re looking at as we move into 2026.
Oscarlyn Elder
The other area that we get a lot of questions about is the valuation on the S&P 500 relative to historical data—
Keith Lerner
Yeah.
Oscarlyn Elder
—historical norms, if you will. We’ve had a very concentrated market. We’ve talked about that before. And we continually get the question, are we in another technology bubble?
Keith Lerner
Yeah. So my answer up front is, our work suggests we are not.
One question, going back on the S&P, sometimes people will say, hey, the historical average for the S&P 500 is 16, and today we’re at 22. Just remember, today’s S&P isn’t yesterday’s S&P, meaning back in 1990, the technology sector was about 5 percent of the index. Now it’s well over 30 percent. Those tend to be bigger profit-margin companies and so forth. So just keep that in mind.
And then going specific to the technology side, we can try to quantify what a bubble looks like. And as we look at that today, we don’t see it. It doesn’t mean things aren’t rich. It doesn’t mean there aren’t high expectations. It doesn’t mean there can’t be some hiccups along the way. But this chart that we’re looking at looks at the year-over-year gains of the technology sector. Right? The year-over-year gains of the technology sector.
So where are we now? We’re up about 27 percent over last year. That’s pretty good. I think we’ll all be happy with that.
But when you look back at history, especially to the left of the chart, in the late ‘90s, we got to 100 percent gains year over year. So we’re not anywhere close to that today. So from a price basis, it’s not bubblicious.
And then we look at valuations, we could say the sector’s trading around 30 times on a PE basis, which is expensive. Back during the technology bubble, it was 50.
Now you don’t need to get to a bubble to say we’re expensive, or we’re rich. But again, I think it’s a bit overdone. We’re certainly not seeing the euphoria. Most of the questions I’m getting is, are we in a bubble?
Oscarlyn Elder
Yeah.
Keith Lerner
I started my career in the mid ‘90s, and people were leaving their jobs to day trade.
Oscarlyn Elder
Right.
Keith Lerner
We’re not seeing that happen today.
Oscarlyn Elder
There seems to be actually a fair amount of negative sentiment just in discussions with clients, to your point, versus euphoria.
Keith Lerner
Yeah. And I mean, we’re kind of still climbing that wall of worry.
Oscarlyn Elder
Yeah.
Keith Lerner
I do think there was pockets of things, some of the quantum stock, they were just moving for no reason, what they call the meme stock. So there was definitely some pockets—
Oscarlyn Elder
Right. Right.
Keith Lerner
—of it. But overall, from our view, we’re not seeing an overall bubble in the market.
Oscarlyn Elder
Well, let’s double click—kind of with that opening, let’s double click more into technology and the Magnificent Seven.
And again, we’ve talked about the fact that we’ve got kind of the larger concentration in these names in the market today.
How do you think about those companies, the market concentration risk, from a portfolio perspective?
Keith Lerner
Yeah. So I think big picture up front, we like tech. We have a growth tilt in our portfolios. We still think that’s where we’re seeing the earnings momentum. Every bull market, as I mentioned, has a defining theme. The defining theme remains AI and tech.
Now, on the same token, something can change quickly. So you still want to diversify. I get that question, why don’t you only invest in AI? Because things can change.
But I love this chart, this table that we’re showing right now. Some people talk about the Magnificent Seven, these big seven growth stocks. You can call it the Magnificent 800.
Oscarlyn Elder
Right.
Keith Lerner
What do I mean by that is that these companies have actually become conglomerates in many ways. And this shows these seven companies how many acquisitions they’ve had since they’ve IPO’d. It’s over 800. And they’ve gobbled up some big companies that are very familiar. Whole Foods, now part of Amazon. YouTube. How many of us use YouTube on a regular basis? That’s within Google or now called Alphabet. LinkedIn. Instagram, for our friends out there using Instagram on a regular basis. WhatsApp.
So you don’t see these trading independently anymore. They’re within these companies. So they’re much more diverse companies, even though there may be some circular nature to what’s happening today.
And maybe one other point, too, is so relative to history, these companies, the top 10 stocks in the S&P, comprise the highest percentage that we’ve seen in decades. When you look globally, it’s less unusual. In fact, you can look at markets like Germany, I think it’s Taiwan, South Korea, China, they actually have one, sometimes bigger names as their top holding in their top 10. It could be 50 percent, 60 percent.
Listen, there’s certainly risk if something goes wrong. But again, I would say at this point, this is still where we’re seeing the strongest earnings momentum.
Oscarlyn Elder
You’ve made it really clear that you don’t see a bubble. And, like, the word bubblicious is now in my brain after you said that. So it’s not a bubblicious environment. Sorry, I can see, like, the gum.
Keith Lerner
Yeah.
Oscarlyn Elder
So we don’t see a bubble.
Talk to us about the AI theme and how you think clients should be thinking about exposure to AI, given the current environment.
Keith Lerner
Yeah, so I’ll go back. As I mentioned, we still like AI. We still have technology. We have the growth tilt. Again, we’re getting that question, should I only invest in this?
And I also remember being a child of the technology bubble that we had back then, something called the four horsemen of these stocks that were invincible. And you look at 15, 20 years later, a lot of them weren’t—the returns weren’t that great.
So even though we like it, I still know, like, the future is somewhat unpredictable. Technology can evolve quickly. And maybe there’s another challenge that comes in.
So you want to still diversify. Even you can look back and say, well, I would have been better off just being in this one part of the market. We still like it. We want to be tilted here, but we don’t want to be just all in on one part of the market because history tells us that diversification does make sense to them.
Oscarlyn Elder
And we would expect over time for the gains from AI to distribute more throughout the market. Is that fair?
Keith Lerner
That’s right. A lot of times in the S&P 500, there’s this discussion about the 493 versus the 7. And we have liked the 7 somewhat more, and we still do today. But at some point, really, the benefits of AI will accrue to hopefully almost every other company that we see, and especially ones that have high fixed costs, a lot of employees, so.
And we’re seeing some anecdotes of that already. At some point in our strategy, once we start to see the earning trends stronger on this other area of the market, you could see this kind of downshift more out of the AI theme and into the broader market, which is also an indirect AI theme.
And think about coming out of the technology bubble. Amazon, they didn’t create the internet, but they leveraged it the most efficiently, or one of the most efficient.
So we’re going to have all these different companies, the 493 industrial, financial, discretionary companies that will leverage this. So we’re just waiting for that upturn to happen before we become more aggressive in the broader market.
Oscarlyn Elder
Let’s take a moment and explore and talk about small caps.
Keith Lerner
Mm-hmm.
Oscarlyn Elder
Because we just inherently end up talking about the large caps kind of in this space. But let’s take a moment to talk about the small caps, because they are part of our portfolios typically.
Typically, we’ve seen historically that small caps have outperformed large caps. However, that has not been the trend for several years now.
Talk to us about why that’s happening.
Keith Lerner
Yeah. So the first thing the chart we’re looking at looks at the three-year rolling performance of small caps relative to large caps. What it shows is over the last three years, small caps have underperformed large caps by over 40 percent.
Historically, there used to be what’s called a small cap premium that over time they should outperform.
So I think a couple of things have happened. One, because the private capital markets have grown so much and there’s so much compliance and so forth, that a lot of companies are staying private for longer.
And also, as I just showed in the last chart, a lot of these companies that are really doing well, they get gobbled up by not only private capital, but also by these other technology companies. So things structurally have changed.
The other challenge, I think, with small caps that has happened is that with small caps, they graduate, which we think graduation is a great thing. Right? They graduate out of the small cap index once they become bigger.
But a perfect example is NVIDIA. It moved into the large cap index back in 2001. Its market cap was $8 billion. Now it’s over $4 trillion.
So all those benefits did not accrue to these small cap companies.
Now I will say on a short-term basis, things got kind of stretched to the downside. We are seeing earnings improve.
And in August, we actually upgraded our view for small caps from less attractive to more of a neutral posture, which means we still want to have some exposure. We want to participate.
Is it leadership? Not necessarily, but we still want to participate, especially if Mike’s view on the economy of an uptick. And then if we have the Fed cutting rates a little bit, that should be all constructive for the small cap outlook.
Oscarlyn Elder
Let’s also take a few minutes and talk about Team USA and international markets, if you will.
Keith Lerner
Yeah.
Oscarlyn Elder
So we’ve been Team USA for some time. We’ve seen international markets start to outperform domestic markets this year.
Tell us what’s happening there and how we’re positioned around that.
Keith Lerner
Sure. And I’ve gotten a lot of questions this year like, hey, international markets are doing so much better. Are you guys still Team USA?
And I will say this chart hopefully provides some perspective. It’s a long-term chart. What it shows is international markets’ performance relative to the S&P. When that’s moving down, that’s saying that international is underperforming. Right?
So you can see over the last 20 years, the line is moving down. That means that international has underperformed by a wide margin over this period of time. But during that, you see these green arrows of short-term outperformance, and it happens quickly.
If you think about this year, coming into this year, international markets had underperformed the US by the widest margin since the 1990s. So what does that mean? They had low expectations and a little bit of good news has gone a long way. Most of the gains for international, especially the international developed, happened over two months back in April and when the US dollar was coming down a lot. So now the US dollar is stabilizing, and on a kind of local basis, without the currency, returns are much more similar.
So what does all that mean? One, we still, in our work, the earning trends are still stronger in the US. We still like the US. But starting late last year and into this year, we have been boosting up our international.
So it doesn’t have to be either/or. Like people say, it’s just large caps or small caps. No, we still have a preference for large caps, but we have some small cap exposure. We’re still Team USA, but relative to where we were two years ago, we’ve increased our exposure as well.
And by the way, if the earning trends start to improve more for these international markets, you’ll see us boost that as well, going back to that weight of the evidence.
Oscarlyn Elder
We’re looking at that very closely.
Keith Lerner
Exactly.
Oscarlyn Elder
And so we’ll continue to keep folks updated based upon what we’re seeing there.
Keith Lerner
That’s right.
Oscarlyn Elder
On the earnings trend.
And I would say, last but not least, I want to ask you about gold. And our team has been fairly positive on gold the entire year.
Keith Lerner
Yup.
Oscarlyn Elder
It’s up about 50 percent on the year. It had quite a day yesterday. It traded down a significant—
Keith Lerner
Yup.
Oscarlyn Elder
—amount, probably, I think, the most in over a decade. And so I think folks are now asking, what role should gold play within my portfolio.
What’s our advice there? What’s our perspective?
Keith Lerner
Sure. As you mentioned, coming into the year, we’ve been positive on gold and really more of as a portfolio diversifier.
One thing that we’ve seen this year that validated that view is days where we’ve seen the stock market and bond market down—
Oscarlyn Elder
Mm-hmm.
Keith Lerner
—gold’s actually been up more than 50 percent of the time. So it’s actually acting well.
The other thing with gold, it tends to move in long-term cycles. And after not doing anything over the last decade, we’ve seen better performance as well.
We all know some of the issues, geopolitical issues, deficit issues, central banks buying more gold, retail investors buying more gold. So the bottom line is, we think there’s some structural factors that are still positive for gold.
But we flagged last week in our work that on a short-term view, the risk-reward had become less appealing. And we have a simple metric we look at is, how above trend is it? So that’s a fancy word, but it just means it kind of went like this. And it became the most extended, like a rubber band, the most extended since 2006.
It just means to us there was some hot money that came in. It’s vulnerable. We think it has to digest these gains, maybe a bit more of a pullback. We actually just finished writing a note that, if our clients are interested, it should go out by the end of today or tomorrow. They’ll have access. And we’ll go through some historical cycles.
But the main takeaway is long-term structurally, we’re still positive. Short term, we think it needs more of a digestion period after just becoming a bit too stretched.
Oscarlyn Elder
So if folks want to know more, they can ask for your note and read it and reach out to their advisors if they have questions after—
Keith Lerner
Sure. Definitely
Oscarlyn Elder
—they do that.
All right. Well, let’s start to bring it home here. And let’s, Keith, just walk us through the key takeaways we want our viewers to leave this discussion with.
Keith Lerner
Thanks. Well, we’ve covered a lot. There’s been a lot to talk about.
Oscarlyn Elder
Yeah.
Keith Lerner
I feel like we say that every time.
Oscarlyn Elder
We do.
Keith Lerner
There’s so much going on. But it is true.
So I think just to kind of wrap up with some of the key themes as we wrap up is, Mike started off by telling us about the economy, muddled through. But an important part is an uptick expected in 2026.
From the equity market, our tagline is the equity market or the bull market still deserves that benefit of the doubt. Of course, we’ll be monitoring things like we always do.
AI and technology still dominant themes that we think likely continues.
Chip mentioned this high-quality focus, being patient for potentially some opportunities in the credit market.
We just talked about gold. We still are positive long term. Prefer to add on pullbacks.
And one of the most important things, which I’ve said a couple times today, is continue to follow the weight of the evidence—
Oscarlyn Elder
Right.
Keith Lerner
—and keep an open mind.
And as the evidence shifts, we’ll keep our clients and advisors informed. But this is how we see things today.
Oscarlyn Elder
And I want to add that, if you want to see Keith on TV tomorrow, he’s going to be on CNBC at 10 o’clock. I expect there’s going to be some gold discussion there because you’re writing that—you’re publishing that note today.
So we just encourage folks, if they want to see you again, they can do so on CNBC tomorrow.
Keith Lerner
If only I could have my kids actually tune in.
Oscarlyn Elder
Yeah.
Keith Lerner
I tell them about it, but they never tune in.
Oscarlyn Elder
Yeah. Keith, we’re never cool to our kids.
Keith Lerner
I guess not.
Oscarlyn Elder
Like, no, it doesn’t matter what TV show you’re on.
Keith Lerner
Yeah.
Oscarlyn Elder
You’re just never cool. So not you, just parents in general.
Keith Lerner
I got it wrong.
Oscarlyn Elder
So, Keith and Mike and Chip, I want to thank you all so much for your insight and your guidance. It really has been an honour to sit at this desk with you now for a number of years.
For this quarterly livecast, I think we’ve come a long way. And hopefully you’re going to let me visit from time to time.
Keith Lerner
I just wanted to also say, Oscarlyn, and you’ve been a part of this since day one, our quarterly. We’re going to be still working very close together, but you’ve been such a big part of what we’ve done. And we thank you.
And the good news is, as you said, you might be moving down the block, but you’re still on the block. So we’ll still see you and—
Oscarlyn Elder
Exactly. I’m moving out of the IAG house, but I’m still in the neighbourhood.
Keith Lerner
That’s right.
Oscarlyn Elder
So it’s all good. And I’m really pleased to announce that Sabrina Bowens-Richard, Head of IAG Client Engagement, she’s going to be joining the next livecast to moderate. And we’re really excited to have her voice. She is a long-term Truist teammate who has multiple decades of investment experience, and she’s going to add a lot to this discussion. So we look forward to having her join the livecast.
Well, today, we’ve highlighted several key insights that we believe are essential for your financial future.
If you want to view the charts that we’ve shared and explore other market and economic content, Truist Wealth’s monthly publication, The Market Navigator, is available through your advisor. So reach out to them.
Our team wants to remind you that regardless of short-term market movements, we believe in leaning into the benefits of a diversified portfolio built on long-term views of markets, with an understanding of your unique financial planning situation and your goals.
This is the time that your Truist advisor can support you on your investment journey. They’re going to listen to you. They’ll understand your goals, as well as your concerns. And they’re going to help you put the current market environment, as well as potential opportunities, into context, helping you to make prudent adjustments to your portfolio along the way.
Thank you for trusting our Truist team to be part of your financial journey.
And as many of you know, there’s going to be a survey that appears on the screen. Please take the time to complete it and give us your feedback. We read over every item and use your perspective to help us improve this experience.
We look forward to talking with you in January for our 2026 outlook.
Thank you so much. Take care.