[Kelly Evans] Another big gain for the Dow. We’re up more than 400 points on the bell, and that’s after Friday’s sharp rebound. It gives investors a chance to take a deep breath, but what happens now? Joining us is Keith Lerner. He’s Senior Vice President Managing Director and Chief Market Strategist at SunTrust Advisory Services. Keith, thanks for joining us. And now that we’ve seen all of this volatility, and by some measures it is still elevated, what do you think investors should do?
We told folks last week that we thought that the pull back was a buying opportunity. I will say when we’ve seen these sharp declines in the past. The bottoming process typically happens over weeks and months, not days, so investors should be prepared for a lot of back and forth. But when we look back at the last 16 corrections a year later, markers were up 20 percent. So ultimately, we think the bull market still has legs.
Keith, what areas of the market at this point have been sort of unduly punished? I mean, are we looking for areas that are basically been sort of knocked down more than the fundamentals warrant? Or was it kind of at a cross the board kind of haircut that leaves us where we were a few weeks ago?
It was pretty more basic, but what I thought was important is that you look at financials. They stayed well above the 200-day moving average. Earners are moving higher. Technical trends are positive. So we would still move there. We still like the industrial sector as well. The global economy is on sound footing. Also earnings, they are also very strong. So it’s been pretty broad-based. We’re seeing a lot of opportunities. And also, Mike, if we look outside the U.S., we’re finding opportunities in places like Japan, emergent markets as well.
Keith, you don’t think anything is fundamentally changed. That seems to be the big debate. You know, are we going to get right back on track to the kind of market we’ve had for the last couple of years? Or is something different now because of higher interest rates or what have you?
Yeah, I do think it’s a regime shift. We’ve gone through this market for several years with a lot of liquidity, low valuations. Now we’re transitioning to a market with better growth and a little less liquidity, which means a little greater volatility. So I don’t think we’re going right back to the new highs. I think there will be, like I said, a little back and forth. But at this point, we have corrected some of that bull sentiment. Valuations are now back to a two-year low and earnings are extremely strong. In fact, over the last month we’ve seen earnings and revisions up 7 percent. So after we get through this process of back and forth as the bottoming process, we ultimately think stocks will move higher.
I guess, Keith, the question is what’s the market now if it has to account for a slightly more volatile tape and potentially higher interest rates? And who knows what inflation’s going to show. What’s the multiple that this market’s going to be willing to place on those earnings? I mean, everybody pretty much is onboard with the idea that the earnings forecast are, you know, they’re kind of taking off and probably look like they’re going to be met.
Sure, well, we bottomed around a 16.3 multiple. You could potentially get back up to a 17 multiple at some point. I still think there’s an upside to the earning estimates. We also have to think that the U.S. dollar is down about 10%. The global economy is sound. And it still takes time to filter all these—the impact of this tax stimulus for all these different companies. So there’s still upside left. Again, we don’t expect robust gains that we’ve seen in the last four or five years. But on a relative basis, stocks look pretty attractive still.
Alright, Keith, thanks for joining us.
That’s Keith Lerner of SunTrust.
“Courtesy of CNBC”
Keith Lerner, Investment Adviser Representative, SunTrust Advisory Services, Inc.
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