Market Insights

[HOST] Welcome to the SunTrust Investment Advisory Group’s market update. In this podcast, we’ll revisit key themes and look at implications for the rest of 2017. We encourage you to discuss this information with your advisor to assess what these trends could mean for your financial plan. We're joined today by Keith Lerner, Managing Director and Chief Market Strategist for the Investment Advisory Group at SunTrust Advisory Services, Inc.

[KEITH LERNER] Given the positive market returns that have occurred this year, we want to take this time to provide an update to our outlook as we continue to analyze trends that will provide investment opportunities for our clients.

So, we came into 2017 focused on three major themes, which remain largely intact and continue to guide our positioning today:

The first theme is a Global Reset. That is despite long-term structural headwinds, such as debt and demographics, we have been expecting the global economy to see a modest uptick this year.

And that’s exactly what we have been seeing so far in 2017. More than 90% of the countries we follow are showing expanding manufacturing trends, which is the best rate in several years. Europe’s economy is on track for the strongest economic growth since 2011, Japan is plowing along, & Emerging markets are re-affirming there position as the world’s principal growth engine.  For the US, its economy has also improved following a weak start to the year.

From here, we expect that the acceleration phase of this global uptick to transition to a slower, but still healthy cycle, as policy stimulus slowly fades. Importantly, though, near-term recession risks remain low and growth should remain firm. This is crucial from an investment perspective given the largest stock market declines tend to occur around economic downturns.

Turning to our second theme, which focuses on the global equity market, we continue to lean bullish, even while recognizing the range of potential market outcomes is wide given policy uncertainty and geopolitical concerns. To date, we see little evidence to change this view given low recession risks, rising profits and improving investor sentiment.

Indeed, not only are economic trends firm, but we are in the midst of the most powerful global earnings rebound since 2009 which should continue to be supportive of stocks. Moreover, investor sentiment is improving and stock funds are seeing the largest inflows since 2012.

While we see further market upside, investors should expect periodic short-term declines. There has only been one calendar year since 1980 where the S&P 500 did not see at least one 5% pullback and many geopolitical risks remain. Nevertheless, as long as fundamental and economic trends remain in place, we advise sticking with the positive intermediate trend and view pullbacks as opportunities.

Our final theme is an interest rate inflection point. The 10-year US Treasury yield has been in a trading range since late 2016. However, rates touched an important low in July 2016 following the Brexit shock. As we move past peak monetary support, we continue to expect rates to stay meaningfully above that low and drift higher over time.

So, from a portfolio standpoint, given our expectation for further stock market upside and a higher range for interest rates, we recommend investors still tilt toward equities. 

Within equities, we still like the US for its stability and see an opportunity in mid-caps.  We remain positive on emerging markets after boosting our view last fall. Further, after several years of underperformance, we have become more constructive on developed international markets, such as Europe and Japan, given stabilizing price trends, cheap valuations, and solid economic trends.

The potential for wider outcomes, though, means investors should also have exposure to asset classes that buffer a downside scenario such as high quality bonds, which have historically held up well during pullbacks, and alternative strategies, which are less dependent on the direction of markets. 

We thank you for listening and for entrusting SunTrust with your wealth. Please reach out to your SunTrust advisor to learn more about how our investment themes may affect your portfolio as each client situation and goal are unique. We look forward to keeping you informed on our investment views.

[HOST] Thanks for your time and insights today, Keith. For more information, visit www.suntrust.com/marketcommentary for the full mid-year report.

[SPOKEN DISCLOSURE] International investments are subject to special risks, such as political unrest, economic instability, and currency fluctuations. The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but SunTrust Investment Services, Inc. (STIS) makes no representation or guarantee as to their timeliness, accuracy or completeness or for their fitness for any particular purpose.  The information contained herein does not purport to be a complete analysis of any security, company, or industry involved.  This material is not to be construed as an offer to sell or a solicitation of an offer to buy any security. The information and material presented in this commentary are for general information only and do not specifically address individual investment objectives, financial situations or the particular needs of any specific person who may receive this commentary.  Investing in any security or investment strategies discussed herein involves risks and may not be suitable for you, and you may want to consult a financial advisor.  For more information please see the “Important disclosures” section in the attached email (if applicable) or on our monthly market commentary webpage.