MW 'Crosscurrents abound' for stocks, but history shows the bull run has further to go, says this analyst

By Jamie Chisholm

Swift V-shaped equity market recoveries usually deliver more gains according to Truist's Lerner

It's jobs Thursday, which just doesn't sound right. And because the July 4 vacation is the reason the nonfarm payrolls data has been brought forward by a day, investors will also only get half a session in which to react as the New York Stock Exchange closes early.

Still, if any bull market can handle adversity it's this one. The S&P 500 SPX closed on Wednesday at a new high having spiked 25% from the April trough.

As Keith Lerner, chief market strategist at Truist, says: "Despite a carousel of concerns - tariffs, geopolitical tensions, policy uncertainty - the market has powered through with a V-shaped recovery, reclaiming all-time highs in one of the fastest rebounds on record."

And in a new note dated Wednesday, Lerner says he thinks the uptrend will continue, though "the path forward is unlikely to be smooth,,. the bar for positive surprises has risen, and the second half of the year brings its own set of questions."

There are a number of factors behind Lerner's cautious optimism - even as he accepts that with regard to macroeconomic issues "crosscurrents abound."

On a positive note, he reckons the U.S. economy will "muddle through" with growth of around 1.3% this year, and while the labor market is cooling it is not collapsing, he says. Consumer activity is choppy but has held up, he adds.

On the policy front, Lerner thinks the Federal Reserve will cut interest rates two more times this year. Furthermore, the likely passing of the Republican's tax bill, while not significantly boosting growth on its own, according to Lerner, will provide investors with more clarity.

That's also what traders would like with regard to trade. "The de-escalation in tariffs has helped ease recession fears, but the lack of long-term clarity remains a risk. Any renewed escalation could quickly shift sentiment," Lerner warns.

In terms of market fundamentals an S&P 500 sporting a cycle-high multiple of 22 times forward earnings may means further gains are tougher to come by. However, Lerner observes that the equal-weighted S&P 500 index is valued closer to historical norms and that analysts' forward earnings estimates have strengthened of late.

Market technicals are mixed. The S&P 500's recent breakout to fresh highs is positive, but breadth - the proportion of stocks rallying with the market - remains poor. Lerner notes that only four sectors - technology, communication services, industrials and financials - are at all-time highs, while small caps, mid caps and the equal-weighted S&P 500 are still below previous peaks.

The key question for the second half of the year is whether market breadth can improve meaningfully. That may require a pickup in the economy and thus earnings, according to Lerner. "We are open to that possibility, but we'll wait for confirmation of improved trends before adjusting our stance. In the meantime, we continue to favor large-cap equities with a growth tilt," he says.

Truist also favors international developed markets, notably Europe, which is still playing catch-up after years of underperformance, and they are also focused on higher quality bonds and municipal bonds. Gold should be held as a portfolio diversifier, they add.

One area of concern is that investor sentiment has rebounded sharply, Lerner says, and this means there's a higher bar for upside surprises that could lift stocks.

Still, the market has a particular trend in its favor - the sharpness of the bounce off the April lows. "Historically, when the S&P 500 rallied more than 20% in two months or less - as it just did - it has been higher a year later in all 10 prior instances, with an average gain of 24%," says Lerner.

Markets

U.S. stock-index futures (ES00) (YM00) (NQ00) are higher as benchmark Treasury yields BX:TMUBMUSD10Y dip. The dollar index DXY is lower, while oil prices (CL.1) slip and gold (GC00) is trading around $3,345 an ounce.

   Key asset performance                                                Last       5d     1m      YTD     1y 
   S&P 500                                                              6227.42    2.22%  4.30%   5.88%   12.47% 
   Nasdaq Composite                                                     20,393.13  2.10%  4.79%   5.60%   12.12% 
   10-year Treasury                                                     4.265      2.60   -12.60  -31.10  -9.90 
   Gold                                                                 3354.9     0.40%  -0.63%  27.11%  41.83% 
   Oil                                                                  66.83      2.93%  6.52%   -7.01%  -20.06% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

The House of Representatives is heading toward a final vote early Thursday to pass President Trump's tax-and-spending bill.

The U.S. nonfarm payrolls report will be released at 8:30 a.m. Eastern, a day early because of Friday's holiday. Analysts forecast a net 110,000 jobs created in June, down from 139,000 in May.

Other U.S. economic data due Thursday include the weekly initial jobless claims, also at 8:30 a.m., and the ISM services survey for June at 10:00 a.m.

U.S. President Donald Trump said in a message on Truth Social that Fed Chair Jerome Powell should resign immediately.

Datadog shares (DDOG) are jumping on news the monitoring-software maker will join the S&P 500.

Shares of Synopsys (SNPS) and Cadence Design Systems (CDNS) are higher after the U.S. rescinded its export restrictions on chip-design software to China.

U.S. equity markets will close at 1:00 p.m. Eastern on Thursday, with the bond market shutting at 2:00 p.m., ahead of the July 4 break.

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The chart

JPMorgan's Guide to the Markets' for the third quarter has landed and contains a chart of the S&P 500's forward price to earnings ratio. As noted above by Truist's Lerner, the market's current multiple is 22 times. The good news for equity bulls is that the valuation is not as egregious as was seen at the height of the dotcom bubble at the turn of the century. The bad news is the multiple's still way above the 30-year average of 17.

Top tickers

Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.

   Ticker  Security name 
   TSLA    Tesla 
   NVDA    Nvidia 
   GME     GameStop 
   PLUS    ePlus 
   AAPL    Apple 
   PLTR    Palantir Technologies 
   AMD     Advanced Micro Devices 
   BBAI    BigBear.ai 
   AMZN    Amazon.com 
   MSTR    Strategy 

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July 03, 2025 06:38 ET (10:38 GMT)

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