We are in a bull market: Chief Market Strategist

Keith Lerner, Truist / SunTrust Advisory Services Chief Market Strategist, joins The Final Round to highlight what recent market action means for investors and argues the case for a bull market.

Video Transcript

MYLES UDLAND: All right, welcome back to "The Final Round" here on Yahoo Finance. Myles Udland with you in New York. And we're joined now by Keith Lerner. He is the Chief Market Strategist at Truist/SunTrust Advisory Services.

And, Keith, I want to get right into your latest note, and it's-- I don't know. Maybe it's-- I wouldn't say it's complicated, but, you know, the stat that you call out, 90% of stocks in the S&P trading above their 50-day moving average. It's essentially saying that the momentum in the market to the upside is very strong right now. And, I mean, your data shows that historically this is a bullish sign, a very bullish sign for stocks over the next year.

When you uncover this kind of data and you share it with clients, do you get a lot of pushback that, hey, man, what are you talking about? This market's overheated. Stocks can't keep going up. What are you saying?

KEITH LERNER: Yeah, well, you know, it's funny. I don't get too much pushback. And we don't only rely on one indicator, but I will tell you this. We put that out last week on Wednesday, and it sounds complicated, but it's really not. It's basically saying we have the majority of stocks rising.

And historically when you get to a really, like, strong momentum signal, when you look out 12 months, we've looked back and the market's been higher 14 out of 15 times.

Another thing is these of readings tend not to happen during bear markets. So you never saw this during 2008.

And what's also important-- and we dug even deeper. And when you go from a very oversold or where everything's moving down to everything's moving up, that's bullish. So our base case is that we are in a bull market.

I will say, you know, short term is a more difficult call. I think it's more mixed because you are seeing a big move. You're seeing put-to-call ratios show a little bit of complacency. But folks that have a 12-month outlook or longer, it suggests that you should stick with the trend and that we're in a bull market.

MYLES UDLAND: And I guess, you know, Keith, kind of more broadly talking about the market strengthen-- you know, this is just one way to slice it. But I think a lot of people have taken a variety of different looks at the market, and most fundamental and technical indicators say that, you know, the market looks strong right now. What seems to be the most common piece of pushback that you're hearing or still seeing? Is it-- I mean, I just keep seeing, oh, the market's diverging from the economy, but that story hasn't changed in eight weeks. Is there anything new that you're seeing from the skeptics on why they view the market as actually weaker than what the price says?

KEITH LERNER: No, I think it's what you just said. It's still the disconnect.

Up until last week, on a four-week basis-- so the four-week sum of fund flows from retail investors was the greatest we've ever seen, even more so than what we saw during March. So in other words, we've had this big ramp up, and during that ramp up, retail investors have been selling at an accelerating pace. So there's just a lot of skepticism.

I will say for the first time this week got a couple of calls about folks that have been cash wondering what to do now. So a little bit of that fear of missing out is starting to come in. But, you know, the old saying is that bull markets start on pessimism. They grow on skepticism, and they mature on optimism. I think we're moving a little bit from the skepticism side maybe towards a tinge of optimism, but it's just a tinge at most at this point.

MYLES UDLAND: And so, you know, obviously we've all talked the divergence to death, but certainly the economy is reopening to some extent. Have you changed your base case on what you think the labor market or GDP might look like by the end of this year, and how much is that factoring in to your thinking in the market right now?

KEITH LERNER: Well, more the path of the economy has been factored in. Back in March, we actually rebalanced and raised equities, and our premise back then is that the market was already pricing in a recession. Historically, markets bottom about five months before a recession is over. So that's why we think right now the market-- the economy is bottoming right now and the recession likely is, you know, going to be over sometime either this month or the coming months.

That doesn't mean that we go right back to where we were. This means we hit the trough. Our base case on the economy is that we likely don't recover the old highs until, you know, early 2022.

Yeah, one last point, Myles, before I forget. We also did a study just on this path when we looked at the worst quarters of economic growth. So we-- and we looked forward and said, OK, how's the market act?

MYLES UDLAND: Yeah.

KEITH LERNER: And historically once we've seen the quarters of 4% or more on the negative side, for the economy-- for the stock market a year later, you were up every time. So that disconnect is normal at the early stages of a bull market.

MYLES UDLAND: All right, Keith Lerner with Truist/SunTrust Advisory Services. Always great to get your thoughts. We'll have you back soon. Stay safe. Take care.

KEITH LERNER: Sounds great. Thanks, guys.