Tech stocks continue to hold market leadership: Strategist

A rebound in tech stocks has put the Nasdaq on track for its best month since January. Truist Co-Chief Investment Officer Keith Lerner told Yahoo Finance Live there's more room to run in tech stocks, and sees the sector as the market leader.

"The old leadership this year is still the new leadership, which is tech," Lerner said. "We think the rally likely has more legs before the end of the year,"

Click here to watch the full interview on the Yahoo Finance YouTube page page or you can watch this full episode of Yahoo Finance Live here.

Video Transcript

SEANA SMITH: All right, for more on how to play the year-end rally and what to expect looking ahead to 2024, we want to bring in Keith Lerner, Truist Co-Chief Investment Officer. Keith, it's good to see you. So we just heard from Kathy her perspective on some of the AI leading names that we're seeing in the market today. I know you recently upgraded the tech sector to overweight on a technical basis. What are you seeing?

KEITH LERNER: Yeah, well, first of all, great to be with you, Seana and Brad. Nice to see some green-- market's been doing really well. In fact, our view has been more positive the last month or so.

And, specifically to tech, I do think tech is leadership and will continue to be leadership. When you look at this market, there were leadership earlier this year, and then the technology sector just digested the gains. And what was notable, it was the last sector to go down during the correction, but it also came back the strongest.

And we just made-- as you mentioned on a technical basis-- a five-month relative high to the overall market. So what does that tell you? That the old leadership this year is still the new leadership, which is tech. And we think that likely has more legs before this before the end of the year.

BRAD SMITH: And so, does that mean Santa Claus rally full on, Keith?

KEITH LERNER: Yeah, it's hard for me because we wrote a note on October 27th when the market was at 4100 and the note title was pullback equals opportunity. So now we're up 10%. I can't be as bullish as we were there. And part of the reason was that we were positive then-- there are several factors, but you're talking about seasonality-- the low-end seasonality was the end of October and then it starts to move higher.

So to put a finer point on it, we still think there's some more upside from here. But we've just gone up 10%, so we have to be realistic that we've come a long way. I think near-term, likely, what happens as you get around this 45, 41, which is the high that we saw in the beginning of September, maybe just digest go back and forth a little bit before another move higher.

But I would say, if we digest, chop around a little bit, I would be looking at tech as an opportunity to add. And I also think other areas like small caps likely have further to go, which are still only up about 2% or 3% this year.

SEANA SMITH: Yeah, Keith, what do you think that upside looks like for small caps?

KEITH LERNER: I think it could be somewhat larger than it is for large caps. Again, I think, again, technology has definitely shown the leadership. But more for mean reversion end of the year, we had a lot of tax loss selling, you think about fund companies that their tax year end is October.

So, small caps are only up about 3% this year. And I think there will be somewhat of a of a chase. We saw that yesterday. I think that likely has more to go. So if large caps up 3% or 4%, maybe small caps can be up 6% or 7%. It's hard for me to say an exact number. I would just say probably more on a short-term basis.

Ultimately, as we move into next year, we still think large caps are the place to be. But we're recognizing that there's still oversold and haven't done much this year.

BRAD SMITH: And what is that catalyst for large caps once we get into next year from your perspective, Keith?

KEITH LERNER: Yeah, well, listen, I think a couple of things. The catalyst so far this year has been the economy has been more resilient than most expectations and that earnings have also proven somewhat strong. So I think some of that continues. I do think next year as we if we have a strong rally into year end that continues.

I think that sets us up for more of choppy waters in the beginning of next year. So I'm not saying we're off to the races, but I do think if you think about technology that earnings will likely continue to hold up well. Because even if the economy slows down from where it's been, companies will likely continue to invest in technology, otherwise, risk being left behind as far as from just a corporate competitiveness standpoint.