U.S. stocks decline raises concerns; Truist: Technical indicators suggest large-cap stocks are nearing a rebound
Investment bank Truist stated that U.S. large-cap stocks are nearing a rebound, despite recent underperformance due to economic concerns triggered by trade policies. The S&P 500 has fallen into correction territory, and Truist believes that the stock market's downward momentum is weakening, with technical indicators suggesting an increased likelihood of a rebound. The relative strength index has fallen below oversold levels, and historical data shows that the stock market typically rises after similar situations. Although valuations remain expensive, the forward price-to-earnings ratio of the S&P 500 has significantly declined, indicating that the market is approaching a stable level
According to the Zhitong Finance APP, U.S. stocks have recently performed poorly due to concerns about the U.S. economic outlook triggered by the Trump administration's trade policies. The S&P 500 index closed down 10% from its recent high on Tuesday, entering correction territory.
However, investment bank Truist stated on Tuesday that some market indicators suggest that large-cap U.S. stocks are nearing a rebound. Notably, Truist downgraded its outlook on U.S. stocks to "neutral" last month, partly due to uncertainties surrounding tariffs. Truist's co-chief investment officer, Keith Lerner, mentioned in a report: "Our stance has not changed. However, in the short term, the downward trend in the stock market is becoming weaker, and our research indicates that the market is within a general range for a rebound."
Keith Lerner pointed out that the technical indicators supporting his view include: the relative strength index has fallen below 30 for the first time since October 2023, indicating an oversold level; since 1995, the S&P 500 index has risen 97% of the time within the next 12 months after experiencing similar extreme readings—excluding signals before and after recessions.
Keith Lerner stated that the valuation contraction of U.S. stocks is heading towards an extreme in the short term. He noted that although U.S. stock valuations are still not cheap, the forward price-to-earnings ratio of the S&P 500 index has decreased by two points over the past 15 days, marking the "most severe valuation contraction" seen since the pandemic. He added that this also indicates that the stock market is approaching a short-term stabilization level. He emphasized that in the early stages of a new presidential term, the stock market often experiences volatility as new policies are introduced, "and with the acceleration of actions by the Trump administration, the current volatility has been amplified."