Market Rotation: Bull Market Still Strong

In July, the stock market experienced a substantial internal rotation, a healthy sign for the current bull market, according to Truist's chief investment strategist, Keith Lerner.

While the S&P 500 saw minimal change on the surface, significant shifts occurred beneath. Sectors like semiconductors and AI-related stocks, which had surged by 90% from late March to their June peak, underwent a correction of approximately 20%. Simultaneously, the equal-weight index, financials, and value stocks demonstrated strong performance.

Lerner emphasized that capital was rotating within the market, not liquidating or exiting. This movement is considered a positive indicator, allowing overheated areas to pause and valuations to reset. This dynamic sets up potential for renewed strength in technology names after this consolidation.

The strategist highlighted that such internal rotations are characteristic of a healthy bull market. After a nearly 20% rally over two months, the market has been trading sideways for the past two months, digesting gains and facilitating this internal rotation. The broad participation across sectors like healthcare and financials further supports the view of a robust and healthy market.