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April’s bruising selloff in stocks doesn’t appear to mark a major shift in the market’s overall trend, according to Truist Advisory Services, which sees earnings-growth potential among the supportive pillars for equities over the next year.
As April came to a close, the firm upgraded equities to a more attractive view. The S&P 500 (SP500) (VOO)(IVV) fell 4.2% last month, the first monthly decline since October.
“In our view, what we have seen over the past month has been more of a reset of an extended market as opposed to a fundamental shift,” Keith Lerner, co-chief investment officer at Truist Advisory Services, said in a Friday note.
After a multi-month string of gains, stocks in April were vulnerable to a pullback, Lerner said. Equities were stung by rising Treasury yields (US2Y)(US10Y) with upside inflation surprises a hurdle to Federal Reserve starting rate cuts.
Friday’s winning session left the S&P 500 up 1.8% for the first three days of May.
“Stocks should remain supported by a resilient economy, record forward earnings estimates, and positive technical trends,” Lerner said. “And on a net basis, we see more upside than downside potential for equities over the next 12 months.”
There is “strong support” for the S&P 500 between 4700 to 4850, the strategist said. The S&P 500 ended Friday at 5,128. “[Based] on the typical pullbacks since 2009, downside should be somewhat limited relative to the recent lows,” he said.
Truist downgraded its cash position by one notch in late April and upgraded bond duration to a more attractive view given higher rates. The spike up in bond yields in 2024 as prices fall has created a more attractive entry point for core fixed-income investors, Lerner said.
Among large-cap ETFs, the SPDR S&P 500 ETF Trust (SPY) was up 7.5% YTD, the Vanguard Total Stock Market ETF (VTI) has risen ~7% and the Invesco QQQ Trust (QQQ) was picked up ~6%.
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