Major averages recorded their best month of the year in November amid optimism about rate cuts from the Federal Reserve early next year.

But the rally may not last and investors need to prepare for more volatility ahead, warned one strategist.

Truist co-chief Investment Officer Keith Lerner told Yahoo Finance Live '2024 will not be the year to keep an investment strategy on autopilot.'

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

- Keith when it comes to the fact that you're saying that investors need to just be prepared. They cannot be on autopilot when it comes to some of their strategy, some of their investments. How would you compare maybe your anticipation for 2024 to what investors had to do this year and then pre-pandemic levels I mean when it comes to that hands on type of approach that you're advocating for?

KEITH LERNER: Yeah so I mean for some folks that have like a 10-year horizon, one year is not going to make that much of a difference. But what I'm basically saying is I think-- when you look at history at any year, by the way, but especially one where the Fed's shifted, is that you're more likely going to have more dramatic move than 5% in either direction.

So I would just say this year relative to, like, the early part of a cycle where you basically just want to be part of the market, I think it be more important to shift within the market. So that means right now we're overweight large caps, we're still overweight technology and communications. At some point, during the year, I think it will make sense to dig hard into small caps. Now they've done better more recently but in other areas of the market--

And there's also a probability if we start seeing some of that job data which still is firm starting to weaken, maybe we can become more defensive. But again, instead of pushing our narrative on what the market should do, we'll let the data speak for itself. In some ways, we're data dependent just like the Feds.

- When you talk about the fact that maybe investors should be ready to shift to some of those underperforming parts of the market, I know a lot of it just depends on the data that's coming out. But more specifically, I guess, what are you looking for in terms of, maybe, the fact or some of the signals that you would be getting that would then signal to you that you need to shift your strategy?

KEITH LERNER: Sure. So a couple of things we look at in our strategy. You know the first thing we start off with is just understanding with valuation. We always say valuation is a condition, not a catalyst. So what is the catalyst? When we look at equity markets and, in general, what we want to see is one is it oversold or overbought. That's one condition.

What are the relative earnings trends? So one of the reasons why the US has outperformed other markets is the earnings momentum is much stronger than the rest of the globe. So if that shifts, that would change our review. And then we also listen to the message of the market, relative price trends. So typically when we see two out of the three of those factors move one way, that leads us to change our position.

Right now, going back to large cap, large caps have a lot more technology than small caps. So you would need technology to weaken. Right now technology is rich, the earnings momentum is really strong and the relative price momentum is still really strong as well. So we're staying overweight there. If we start seeing some cracks in those earnings trends, we would shift our position.