Coronavirus Spreads to Equity Sectors
The coronavirus outbreak and the Democratic primary have affected sector leadership. However, we’re keeping our sector views unchanged—for now.
The Coronavirus and Emerging Markets: Ready for a Rebound?
As a recovery in global manufacturing began to take hold in the fourth quarter of last year, commodity prices rose dramatically. Yet, emerging market (EM) stocks failed to see the similarly strong outperformance of U.S. stocks that typically accompanies rising commodity prices.
Will Coronavirus Have a Lasting Impact?
Although stocks rebounded after a sharp drop in January, the market’s reaction to the coronavirus outbreak highlighted stock vulnerabilities.
Sleight of Hand: Dissecting the Latest Employment Data
Friday’s jobs report, as well as other recent labor market data, has an “on the one hand; on the other hand” flavor to it.
Will the Coronavirus Outbreak Lead to a Market Breakdown?
While it is impossible to predict the extent a virus can spread and have greater consequences than past epidemics, history indicates that the global economy and markets have been relatively immune to the effects of past epidemics. A key reason is that global health organizations are prepared for outbreaks and effective when mobilized.
Virus: Could it be the Catalyst to Change Sentiment?
As expected, a long and strong move up in stocks attracts more and more believers and adherents, which can stretch sentiment to extremes, like now.
Trends Diverge as Markets Enter 2020
The U.S. economy split sharply in 2019—manufacturing activity lagged services, corporate profits lagged stock performance—while investor sentiment surged. How long will these divergences continue in 2020?
Best of What’s Around: Sticking with Large Caps
For nearly three years we’ve been tactically recommending overweighting large caps (S&P 500) and underweighting small caps (Russell 2000)—time for an update.
2020 U.S. Market Outlook: Ramble On?
Next year is set to start on a high note, with consumers and the Fed keeping the economy and market afloat; but risks remain elevated, including trade and elections.
Fed Holds Rates Steady, as Expected
The Federal Reserve left interest rates unchanged, as expected; while signaling rates would stay in their current range through next year.
2020 Market Outlook: U.S. Stocks and Economy
The U.S. economy likely will remain split in early 2020.
Are We There Yet?
U.S. stocks continue to trade near their all-time highs but recent hiccups in trade talks have re-emphasized that a deal remains elusive, decisively unpredictable, and incomplete. Key components of the first phase have yet to be put in writing and major structural issues—such as intellectual property theft and forced technology transfers—will remain unaddressed for the foreseeable future, confirming that little-to-no material progress has been made.
’Tis the Season for Consumer Discretionary … or Not?
While all eyes are on estimated sales throughout December, sector performance for the month is historically not impressive.
Any Weather: Valuations Say Stocks are Cheap and Expensive
Market valuation is always a factor; but often misunderstood is the vastness of the spectrum of metrics, and the sentiment nature of valuation.
Does The Return Of QE Mean Big Gains For Stocks In 2020?
As we head into 2020, investors should be cautious in assuming that the return of central bank balance sheet growth means stocks will follow along. The real driver of the stock market in 2020 may be the outlook for growth tied to prospects for a comprehensive U.S.-China trade deal, which may revive growth in manufacturing and corporate earnings.
Shiny Happy People: Investors Cheering Stocks’ New Highs
-U.S. stocks entered November in the process of finally breaking out of their post-January 2018 trading range. -Along with new highs has come elevated optimistic sentiment; a near-term warning sign. -Spread between the “smart money” and “dumb money” recently reached an extreme.
Slowing Down While Speeding Up
While volatility has remained subdued and U.S. stocks are at all-time highs, a near-term concern is that investor sentiment may be getting a bit too frothy. The potential signing of a “phase one” U.S.-China trade deal and rollback of some tariffs has contributed substantially to the rally; yet the proposals made have yet to be corroborated by anything in writing.
Macro View is Obscure, but the Earnings Landscape Is Clearer
Although economic signals are mixed, bottom-up sector fundamentals help inform decisions on sector ratings.
Split Personality: U.S. Economy’s Bifurcation Persists
Last week’s key releases of job growth and ISM manufacturing data highlight the ongoing bifurcation in the economy; with the consumer bucking manufacturing’s malaise.
Fed Cuts Rates as Expected … Three and Done or More to Come?
As expected, the FOMC lowered the fed funds rate (and the IOER) by 25 basis points; with a slightly more hawkish tone in the accompanying statement.
Don’t Place Your Bets
While volatility has receded lately and geopolitical tensions haven’t heated up, little-to-no progress has been made on a comprehensive U.S.-China trade agreement; while the timetables for Brexit continue to shift. Although U.S. stocks are trading near their all-time highs, investor hesitation has persisted due to mixed economic data, the questionable effects of monetary policy and trade uncertainty. We continue to recommend that investors use volatility to rebalance and stay near their strategic asset allocations; maintaining our neutral stance on U.S. equities (with a bias toward large caps at the expense of small caps), and our neutral stance on both developed international and emerging market equities.
When Yields Talk, Sectors Listen
For certain sectors, a change in interest rates has a relatively large impact—and that impact has increased significantly in the “new normal” environment of low interest rates.
It’s Late: So Says the Profits Spread and Leading Indicators
Third quarter earnings season is underway, so it’s time to look under the hood.
A wide gap between S&P 500 profits and the broader NIPA measure from the BEA supports a late-cycle view.
The late-cycle view is also supported by weakening leading indicators.
Volatility has resurfaced due to a revival in trade tensions, heated political fighting in Washington, and confusion over whether the Fed will continue to ease or hold off on rate cuts later this month. Stocks have dropped back into a tight range and have still yet to breach their all-time highs. With the market still highly reactionary to major headlines and struggling to find its footing, we continue to recommend that investors stay near their long-term asset allocation. We also continue to recommend using volatility as a means of rebalancing; and maintaining a bias toward large-cap stocks at the expense of small caps. So long as myriad uncertainties continue to mount, we believe stocks will remain under some pressure and headway will be limited.
Don’t Buy Expensive Just Because It's Defensive
With a resurfacing in trade tensions and persistent economic uncertainties, investors should prepare for further volatility.
Welcome to the Working Week: A Look at the State(s) of Employment
Employment reports are increasingly in focus due to weak survey data and a risk that manufacturing’s weakness spills over to services/consumer segments.
Market Volatility: What Investors Should Know
U.S. stocks plunged Wednesday, as weak economic data rattled investors. Here’s what you should know.
Schwab Market Perspective: Hitting the Ceiling
While U.S. stocks emerged out of their tight range a couple weeks ago, they have yet to surpass their July highs—as trade uncertainties remain, economic data continues to be mixed, and cloudy monetary policy and political outlooks persist.
Lessons from Choppy Sector Trading
It continues to be a difficult environment in which to trade around short-term news, even if short-term news is having an outsized impact on market behavior.
The Final Cut … or More to Come?
In line with expectations, the FOMC cut rates by 25 basis points; also lowering the IOER by 30 basis points to address liquidity problems in the repo market.
Confusion or Conviction?
Stocks have climbed higher but we don’t recommend attempting to trade around short-term moves; rather, investors should remain disciplined and diversified, and use any volatility to rebalance as needed. The consumer continues to drive the economy, while weakness is mostly still concentrated in manufacturing. Yet, the potential for volatility remains, as a comprehensive trade deal is not in sight, tariffs on consumer goods are still set to kick in on December 15, and monetary policy’s ability to spur growth and inflation may be waning. We continue to favor large caps over small caps and are neutral to U.S. and global equities.
Chop, Chop, Chop: Stocks’ Choppy Behavior Around Trade News
Stocks recently broke out of their short-term range on “good” trade news; but trying to trade around trade-related news has been a treacherous exercise.
Schwab Market Perspective: Storm Clouds Building
Risks to the market are growing but the American consumer continues to look strong. Some preparation for a potential storm are prudent, but no drastic actions are suggested.
Drifting Toward Defensives
It doesn’t appear that the U.S. has entered a recession yet, or even that one is imminent—although start dates to recessions typically aren’t known until we’re looking in the rear-view mirror.
War (What is it Good For?)
Economic uncertainty has spiked given the escalating U.S.-China trade war; with increasing risk it weakens the dividing line between the manufacturing and consumer sectors.
Mixed Picture Getting More Concerning
Stock markets have become more volatile as trade tensions have worsened and weakness in the manufacturing side of the economy has caused increasing concern. Swift resolutions to these issues seem unlikely and a dovish Fed may not be the elixir to what ails the economy. With the likelihood of persistent volatility in the coming months, we recommend investors stay broadly diversified and focused on the long term. From a tactical perspective, we remain neutral to U.S. and global equities; with a bias within the U.S. market toward large cap stocks relative to small caps. Investors should not attempt to trade around short-term moves in the equity markets; but instead remain disciplined, diversified, and use rebalancing as necessary.
Recession Watch (or Distant Early Warning?)
Current economic conditions do not look recessionary, but risks are rising and if we’re heading into one, it’s possible it already started.
Market Volatility: Here’s What You Should Know
Market volatility can make anyone nervous. Here’s what investors should know about dealing with it.
Schwab Market Perspective: Canary in the Coal Mine…or Simply Clouds on the Horizon?
The manufacturing side of the economy is showing increasing signs of weakness, but the consumer still looks healthy—which side wins and what should investors do?
What Declining Interest Rates Could Mean for You
When the Federal Reserve lowers its key short-term interest rate, financial markets often move in response. But the impact isn’t uniform across the board.
Tyrannosaurus Debt: A “Deep Dive” Look at Debt and its Burden(s)
The national debt and deficits remain at worrisome levels, spawning questions of how economic growth will be affected and whether we will hit another wall.
Schwab Market Perspective: Be Careful What You Wish For
Stocks have been buoyed by rate cut expectations, but are investors putting too much stock in monetary policy and setting themselves up for potential disappointments?
Round Here: Bulls Celebrate Round Numbers for U.S. Indexes
Round number crosses for each of the three major U.S. equity averages over the past month helped elevate investor sentiment, but is it now stretched?
2019 Mid-Year Outlook: Rate Expectations
In the first half of 2019, major stock indexes including the S&P 500® reached new highs, yet the outlook for global economic growth softened. Recession risk has risen, and rising tariffs have created even more uncertainty.
Running in Place
The last 18 months have been anything but boring, but if you had ignored the market over that time and only recently started paying attention, you may think that little has happened. The running in place analogy is probably better replaced by hiking a mountain.
U.S. Stocks/Market Mid-Year Outlook: Battle Symphony
Myriad economic, market and policy battles are raging today; providing some color, but lots of gray area as we look ahead to the second half of the year.
Dangers Rising…or Potential Opportunity Emerging?
We won’t speculate about the final outcome of ongoing trade tensions, but we are growing more concerned that the hit to business confidence will increasingly filter through to consumer confidence and hard economic data. A more positive outcome could elongate the runway between now and the next recession. In the meantime, we continue to recommend that investors maintain a relatively neutral stance consistent with long-term asset allocations, using inevitable gyrations to rebalance as needed.
How Could the U.S. Economy Be Impacted by Tariffs?
Let’s talk what everyone’s talking about, the trade war with China and tariffs.
The Age of Worry: Investor Sentiment Takes a Hit
It doesn’t take much of a market downturn these days for investors to pull in their bullish horns; but more may be needed for market stabilization.
Trade Tension Takes Turn at Top
Trade tensions will likely continue to contribute to increase volatility and the longer it drags on, the bigger hit to economic growth, consumer/business confidence and the stock market. Our neutral stance around U.S. equities suggests keeping allocations no higher than longer-term strategic targets, with a large cap bias; using volatility for rebalancing opportunities. For those investors who don’t have broad international exposure, now may be a good time to consider areas that may feel less impact from the U.S.-China trade dispute.
Street Fightin’ Man: President Trump Ups Trade War Ante
Trade is back in the headlines, and on Twitter, with volatility sensitive to every tweet, tariff escalation and retaliation; but a look at the actual economic implications is in order.
Stocks Drop as U.S.-China Trade War Escalates
Stocks dropped on Monday as the trade war between the United States and China escalated, with China announcing a retaliatory tariff hike on U.S. imports. The S&P 500 index closed down 2.41% and the Dow Jones Industrial Average lost 2.38%, their worst day in four months.
Sell in May?
Some volatility has returned and we believe a pullback in U.S. equities is a healthy development in terms of both investor sentiment and valuations. But some cracks in economic growth may be emerging, and inflation could start to rise given the tight labor market, so investors should remain disciplined with an eye toward rebalancing in the face of volatility. Trade remains a weight on the confidence of business leaders, and if the dispute with China continues to escalate, stocks and the economy would likely suffer further.
Saved by Zero: Earnings May Eke Out a Positive Quarter
As we move toward the finale of first quarter earnings season, results have been a bit better than expected, but barely in positive territory. The earnings beat rate has been above historical norms; while revenues have been a touch more disappointing relative to expectations. Multiples have expanded this year thanks to a strong stock market; but earnings will have to do more of the heavy lifting at some point.
Concerning Lack of Concern?
U.S. equity market gains since the Christmas Eve 2018 low have been impressive, and we don’t think a recession is in the near-term future—but sentiment is extended and investors should be cautious about chasing gains at this point; either in the United States or emerging markets. A near-term pullback would likely be healthy and could afford a better opportunity for investors who are looking to add equity exposure. On the other hand, those investors whose portfolios are now holding an outsized equity allocation could use the latest strength to rebalance back toward targets.
Better Days: Leading Indicators Inch Back to Cycle High
The Leading Economic Index lifted enough in March to bring it back to a cycle high; but the deterioration in the trend bears watching.
Diversification: Finally Back After 20 Years
Stocks are off to a strong start this year, but the bulls aren’t running in a herd. Bull markets can be found in the stocks of countries around the world, but their movements are less correlated with each other than they have been in the past 20 years. The change brings the return of an important diversification benefit for holders of globally diversified portfolios.
Stocks vs. Bonds…Who’s Right?
Stocks and bonds appear to be at loggerheads with regard to the economic outlook, and we believe both sides have merit. Unless earnings comfortably surprise on the upside, with healthy corporate guidance, there is a risk that stocks will give back some of their recent gains. Investor optimism remains elevated, economic data has been mixed, earnings expectations are in the red for the first quarter, and persistent trade concerns all remain potential headwinds. Stay patient and diversified and stay focused on longer-term goals.
Did the Jobs Report Give You a Peaceful Easy Feeling?
Although Friday’s payroll report had a lot to cheer and was generally seen as Goldilocks-like, looking under the hood should generate some caution.
Brief dips in U.S. stocks have done little to dent investor confidence; and with an inverted yield curve, trade uncertainty continuing, economic growth slowing and earnings possibly declining in the first quarter, we believe a pullback is becoming increasingly likely. Investors should remain disciplined and diversified and continue to prepare for the inevitable end of this cycle—without needing to pinpoint the timing precisely.
Blue, Red and Grey: Yield Curve Inversions
The inversion of the 10y-3m yield curve unleashed a sharp pullback in stocks; but the Fed’s “preferred” curve first inverted in early January.
Quarterly Market Outlook: Stay Prepared
The Schwab Center for Financial Research’s theme for 2019 was “be prepared,” and that still holds true. Here’s what we expect to see for the remainder of the year.
Schwab Market Perspective: Sliding into Recession…or Another Q1 Quirk?
Recession fears have risen and stocks have become more volatile, but is now the time to prepare for a sharp downturn?
Can’t You Hear Me Knocking: A Contrarian Look at Inflation
I’m more intrigued with untold stories than well-told stories; which is why my contrarian side wonders whether there’s too much investor complacency about inflation.
A Closer Look at Debt and the Economy
I want to tackle a more evergreen topic, which is the implications on the economy of a high and ever-rising burden of debt. But I want to first differentiate between the deficit and debt.
Schwab Market Perspective: Overcorrecting the Correction?
The sharp rebound in equities seems to be in contrast to the deterioration in data, which could lead to near-term volatility.
The Beginning is the End is the Beginning: A Look at Recessions
Recession chatter is abundant lately. It’s increasingly the focus of Q&A sessions at investor events at which I’ve been speaking. I also received a series of questions last week about recessions from a Schwab colleague who has many younger Schwabbies on his team, most of whom have not lived as working adults through a recession.
Be Careful What You Wish For
Markets got a healthy reprieve from last year’s fourth quarter carnage as a few headwinds became tailwinds; including a more dovish Fed, some hopes on trade, strong fourth quarter earnings growth, and an end to the government shutdown.
No Quarter: Could 1Q19 Bring Negative Earnings?
Although 4Q18 earnings season is capping a very strong calendar year for earnings; the outlook for 2019 is decidedly murkier, with 1Q19 already in negative territory.
Mixed Market Messages
It’s difficult to get good footing in a market that has so many mixed messages bombarding it. We recommend patience, discipline and diversification as expect continued bouts of volatility. The U.S. government shutdown is over, for now…and the Fed is in pause mode, for now…but confidence in government is low and monetary policy is likely to persist. In the near term we believe the most important needle-mover will be the result of trade negotiations between the United States and China. The problem is the inability to gauge the likely outcome.
Two Out of Three Ain’t (Good): Leading Indicators Falter Again
The Conference Board’s release of December’s Leading Economic Index was notable for its continued trend deterioration; and the second decline in three months.
Schwab Market Perspective: Rally Return or Continued Caution?
Stocks have rebounded off the lows but we don’t think we’re off to the races; issues remain and investors should remain vigilant.
Every Rose Has its Thorn: Healthy Rally, but Risks Linger
At a recent client event I was asked about our ongoing view that volatility would remain elevated—specifically, whether the rally off the December 2018 low in U.S. stocks was an indication that our view might be wrong.
Keeping Calm in the Chaos
It can be difficult to remain calm in the midst of stock market action like we’ve seen over the past couple of months—but discipline is necessary during more tumultuous times. Although we do see rising risk of a recession, we don’t see a repeat of 2008 in the cards. Absent a recession—even if we enter a “formal” bear market (at its recent closing low, the S&P was down 19.8%)—additional weakness may be somewhat limited. Recession-related bears tend to be longer and grizzlier than non-recession bears. Until we get more clarity on the health of the economy, we continue to suggest investors remain defensive.
Rebel Without a Pause: Fed Raises Rates, But Gets a Bit More Dovish
The Fed opted to buck a broadening outcry for a pause and raised rates 25 basis points; while offering a slightly more dovish statement and lowered economic projections.
2019 U.S. Market Outlook: Ten Years Gone
Early last week we published our collective 2019 outlook summary and today’s report will put some more visual meat on the bones of that summary.
What’s Going on With the Yield Curve?
The yield curve has appeared in quite a few news headlines recently. Why is this technical-sounding tidbit of financial jargon suddenly getting so much attention? The short answer is that the yield curve has a reputation for predicting recessions, and some market watchers are worried recent changes to the curve’s shape are sending a warning signal about the economy.
2019 Market Outlook: U.S. Stocks and Economy
U.S. economic growth was strong in 2018, but some of the forces behind that strength were either short-term or likely to fade going forward.
Gathering Storm or Passing Clouds?
The end of 2018 will likely morph into more of the same in 2019—higher volatility within a relatively wide equity range, including ongoing corrective phases or even a continuation of what has been a “stealth” bear market this year (rolling bear markets across and within asset classes).
Truce: He Said, Xi Said
Stocks are applauding the truce which resulted from Presidents Trump and Xi dinner this weekend; but enthusiasm curbing over the next three months may be warranted.
Market Correction: What Does It Mean?
When a stock index falls by more than 10%, it is often said to have entered “correction” territory. That’s a fairly neutral term for what feels like a nerve-wracking drop to many investors. What does a correction mean? What’s likely to happen after a correction, and what can you do to help your portfolio weather the downturn?
The Best Way to Travel: Musings from Asia
I spent last week in Asia—two days in Hong Kong, one day in Shanghai, and two days in Singapore—visiting our clients. It was a fascinating trip in some of my favorite cities in the world … well, in the case of Singapore, a city, island, and country all in one.
Schwab Market Perspective: Unresolved Issues
Volatility has ramped up but little has been resolved. Caution continues to be warranted as unresolved issues appear set to continue.
Higher Ground: Wage Growth Makes its Move
There was much to cheer in October’s jobs report, especially wage growth; but that tends to come at a “price” of tighter monetary conditions.
The Seasons of Investing
October has again been a scary month for investors, even though past performance does not indicate future results, history shows that stocks tend to face a seasonal tailwind heading into the end of the year. There will likely be more volatility but at least overly optimistic investor sentiment has eased, U.S. economic growth remains solid, and the midterm elections will soon be over, all of which could trigger at least a relief rally off the recent lows. But gains both here and globally are likely limited by myriad late-cycle pressures. Remain disciplined, consider diversification and rebalancing, and consider establishing a more tactically defensive positioning.
Sympathy for the Devil in the Details of Leading Economic Indicators
Investors often focus on the “good/bad” level of economic indicators, without regard to the stock market’s keen ability to sniff out “better/worse” inflection points.
Always Be Prepared
Stock market action recently illustrates again why it’s important for investors to remain disciplined and diversified in a way consistent with their risk tolerances and investment goals. The bull market may have more legs, and upside surprises are possible, but risks have been rising over the past year or so, leading us to be more cautious and recommend that investors limit the risk in their portfolios.
Benefits of Rebalancing You May Not Be Considering
As most people know, I spend some time in the world of the media, whether it’s on the phone with print journalists or doing financial radio, financial media on television. And more often than not, they’re three-to-five minute segments, and it’s usually about current events, what’s going on in the market and the economy.
Schwab Market Perspective: Mixed Messages Sending a Clear Signal?
We believe there are three positives, three negatives and three wildcards for stock market performance in the fourth quarter. We expect the balance of these factors to result in further gains for global stocks.
Tighten Up: Fed Raises Rates Again
The Fed raised rates for the third time this year, and expects another three hikes next year; while also upping its near-term economic projections.
A Closer Look at U.S. Tariffs
Liz Ann Sonders highlights two things about the so-called trade war with China that she believes don’t get the attention they deserve.
Waiting (Was) the Hardest Part, But Wage Growth is Finally Kicking In
The August payroll report was generally strong, with a kick into higher gear for wages. Will “Main Street” feel better than “Wall Street” this year?
Stocks Laboring to Move Higher
The U.S. equity bull market is intact, but recent action has not been fully-convincing, and we believe risks are rising, especially if we begin to see the same kind of frothy investor sentiment which accompanied the January highs. We continue to push the merits of tried-and-true disciplines like asset class diversification and rebalancing—the latter which forces investors to do what we all know we’re supposed to do, which is buy (or add) low and sell (or trim) high. As the old adage goes, “bulls make money, bears make money, but pigs get slaughtered.”
Eyes on the Horizon: What Could Cause the Next Crisis?
With the 10-year anniversary of the onset of the global financial crisis just weeks away, now is a good time to ask where the next global economic crisis might come from. To be clear: We’re not sounding any alarms here. We don’t think a crisis is imminent. But we do like to keep our eyes on the horizon.
Risks Bubbling Below the Surface?
The recent pickup in market volatility, some choppy action by U.S. stocks, and notable weakness in emerging market stocks have reinforced our belief that we may be at or near an inflection point in economic fundamentals and/or market character. We never suggest trying to time the market in the short-term, but do believe discipline around strategies like rebalancing and diversification is essential at this stage in the cycle. Risks are rising.
Second Hand News: Facing a Second Derivative Economic Inflection Point?
This report may end up being the first in an ongoing series. I think of it as a “look inside my notebook,” as it literally represents a synopsis of the recent notes I put together for our latest Asset Allocation Working Group meeting. These represent a number of budding risks for the economy with which the markets are grappling. There are offsetting positives of course, but let’s leave this report to a look at some of the possible negatives.
Schwab Market Perspective: Balancing Act
Stock indexes have been able to move higher as the balancing act between economic growth and investor concerns continues—but how long will it last?
Fed Stands Pat But Gets Ready to Bid Adieu to Meetings Without Pressers
The Fed acted as expected by not acting on interest rates; and although there was no associated press conference, the statement had a few nuggets of note.
Sugar Magnolia: Is the Economy’s/Earnings’ Surge a Sugar High or Sustainable?
The economy and earnings grabbed headlines last week; with a sharp acceleration in real GDP growth, and concerns about earnings thanks to Facebook’s face plant.
What Happened to the Summer Doldrums?
Rising trade tensions are making us a bit more cautious, although the economic and earnings fundamentals remain healthy, which could cushion some of the blow from a trade war. Stay invested, but don’t reach too far out the risk spectrum, be prepared for bouts of volatility, and remain patient, diversified and disciplined.
Quality or Quantity: Skills’ Deficit, Jobs’ Surplus
Job growth remains strong and the importantly-lagging unemployment rate ticked up for “good” reasons; but the skills gap remains ample.
Just Noise or Something More?
The noise surrounding the stock market is getting louder, resulting in more violent moves in equities. Much of the sound and fury is best ignored by long-term investors, but there are growing risks to the bull market in the form of rising trade disputes and the possibility of a central bank mistake. For now, we believe the secular bull market is intact, but are growing more concerned and urge investors to remain disciplined and diversified.
2018 Mid-year U.S. Equity Outlook: Headwinds and Tailwinds Facing Off
We continue with our theme of “it’s getting late” when looking ahead to the second half; with important and rising risks to weigh against the rewards.
Searching for Balance
Despite a recent modest pullback in U.S. stocks, and a sharper one in international markets—reflecting both trade worries and the recent strength in the U.S. dollar—we don’t believe it marks the beginning of a more severe correction. Risks of a prolonged trade dispute have risen but it’s too soon to declare war; while the possibility of a positive resolution that would likely be a tailwind for equities. For now, a healthy U.S. economy is an offset to those growing worries. Threats to the current bull market have risen, and they include this being a midterm election year—which have historically been accompanied by larger-than-average maximum drawdowns. We continue to espouse discipline and diversification; but for now it’s in the context of an ongoing bull market.
Debt Song: It’s Not a Pretty Tune
I spend a lot of time on the road speaking to our investors and advisors and one of the common questions I get during the Q&A sessions is, “What keeps you up at night?” Aside from having an 18-year old daughter—and being a chronic insomniac anyway—my reply usually centers around debt and the burden it has and will continue to place on our economy.
Rough Waters for Summer?
U.S. stocks have moved toward the top of the recent range but volatility is likely to rise at times during the summer as investors deal with various global geopolitical headwinds. Further strength in the U.S. dollar would likely exacerbate the volatility—particularly within emerging markets. But limited signs of pending recession risk—at least in the United States—should keep the path of least resistance for the stock market higher. That said, patience and discipline are more important than ever in the face of sometimes ominous-sounding headlines.
Milemarker 92: Record String of Positive Payrolls
The May employment report was gangbusters, with strength across most components, including payrolls, the unemployment rate and wage growth. Can it continue?
Schwab Market Perspective: Buy in May…and Stay?
Stocks have rebounded along with economic data, could we be setting up for a solid summer?
Long Train Running: Leading Indicators Show Little Risk of Recession
Leading economic indicators have accelerated since morphing from recovery to expansion, so let’s see what that means for the economy and stock market looking ahead.
How Do the Stock Market and the Economy Interact?
Liz Ann Sonders draws connections between past and present to explain the action of the stock market and how it’s connected to economic fundamentals.
Navigating the New Environment
A more challenging investing environment requires a more disciplined and patient investing approach. The next few months could continue to be choppy, but a U.S. and/or global recession still appears a ways off, which should keep the bull market—here and globally—intact.
Beast of Burden of a High Earnings Bar
Since tax reform was passed the corporate earnings jump has been extraordinary…but is the good news already priced in to stocks?
It’s Windy Out There
Headwinds for stocks have risen but tailwinds also exist, resulting in a more tumultuous environment. We believe there are enough positives to keep the bull market going but gains are likely to be slower in coming, volatility is likely to remain elevated and discipline to a long-term plan will be crucial. Avoid overreacting to the barrage of news and focus on the items that could change the actual fundamentals of the economy.
Don’t Fear the Yield Curve Reaper
The yield curve has flattened significantly recently and has elicited headlines of impending doom, heightened recession risk and investor consternation…is the worry overdone?
Schwab Market Perspective: Keeping Things in Perspective
There have been some violent market moves recently, but it’s important for investors to keep things in perspective.
Schwab Market Perspective: Navigating the Changing Market Environment
The stock market environment has changed since January, making it more challenging but also creating potential opportunities.
Trade Mistakes: Will a Trade Spat Turn Into a Trade War?
Stocks erupted in a “tariffs tantrum” last week only to reverse course on hopes the U.S.-initiated trade spat won’t turn into a trade war.
All Right Now: Goldilocks Jobs Report Eases Inflation Fears
Goldilocks reappeared last week with an extremely strong jobs report that gave stocks another reason to cheer the ninth birthday of the bull market.
Schwab Market Perspective: Getting Back to…Normal?
Stock market volatility appears to be largely a consequence of the economic environment returning to a more “normal” status.
Take the Long Way Home: Economic Expansion Gets a Boost
Every month in the immediate aftermath of the release of The Conference Board Leading Economic Index (LEI) I put together a small deck together for Schwab’s Operating Committee highlighting the overall data and some of the key takeaways.
Volatility Gets Back in the Saddle Again
In a record-breaking sprint from all-time highs to an “official” correction, the “short vol” trade unwinding exacerbates an initially fundamentals-driven decline.
Schwab Market Perspective: Volatility…it’s Back!
Volatility has spiked, jolting investors out of complacency, but that doesn’t mean any dramatic action is needed.
Say Goodbye: Yellen Passes the Baton to Powell with Little Drama
In what was Janet Yellen’s final meeting as Fed Chair, rates were left unchanged, but the outlook for inflation was elevated in the statement.
Life’s Been Good: But Don’t Get Greedy
Stocks have ripped higher to start the year and “melt-up” has become a popular descriptor; but it’s time to judge whether the flame’s too hot.
Melt-up! Now What?
U.S. stocks may have entered a melt-up phase but for now it is relatively well supported by earnings growth; and although sentiment is extended, behavioral measures indicate still some skepticism. However, given elevated valuations, and the aforementioned overly optimistic sentiment, volatility is likely to increase and more frequent pullbacks are possible. The bull should continue to run, but likely with a bit more drama, so it’s important to stay diversified and disciplined around your long-term asset allocation.
Taxman: Bringing Some Cheer in the New Year
Tax reform—or better put, tax cuts—should provide a boost to the economy, but some enthusiasm-curbing is in order regarding the details and timing.
Whole Lotta Love … for Tax Reform?
Perhaps it’s premature (or even a jinx) to mention that if the S&P 500 ends December in the green, it will be the first time in history that U.S. stocks—as measured by that index—were up during every one of the 12 months.
The Big Picture Heading into 2018
Investors are cautioned not to extrapolate 2017’s performance into 2018, and we expect more frequent bouts of volatility. The global bull market is intact, supported by solid global growth and strong corporate earnings. But with the expectations bar now set quite high heading into next year, pullbacks are increasingly possible. Discipline is important looking ahead.
I Melt with You: Anatomy of a Market Melt Up
The U.S. stock market has bucked incessant negative news and now appears to be in melt up mode; meaning discipline is more warranted than ever.
Earnings season, both in the United States and globally, has been solid, while economic growth has accelerated across much of the globe—all supportive of an ongoing global bull market. Elevated optimism and complacency could lead to pullbacks, but we believe it would be in the context of an ongoing bull market.
One Thing Leads to Another: Productivity’s Rebound
My last report was on the acceleration in business capital spending (capex) that is likely to be an economic highlight in 2018. Part-and-parcel of capex is productivity—officially known as non-farm labor productivity—which has averaged less than 1% annualized growth during the current expansion.
Fed Stands Pat in November; Gets Ready to Go in December
Surprising no one, the Fed kept rates unchanged; but strongly hinted that the market’s correct about the near-certainty of a December rate hike.
Stocks Aren’t so Spooky
Global and domestic economic growth, along with a solid earnings picture and a potential tax reform tailwind, suggest investors should remain at their target equity allocations. Pullbacks are possible but a recession doesn’t appear to be in the cards in the near term, which historically has meant the risk of a pullback turning into a bear market is low.
Pumped Up Kicks: Several Important Kickers for a Strong Capex Cycle
Since the initial surge out of the global financial crisis, capital spending has been range-bound; but there’s ample reason to expect a new upcycle.
A Decade of Results: The Past, Present, and Future of Schwab Fundamental Index Funds
It’s been 10 years since Charles Schwab Investment Management, Inc. first launched the Schwab Fundamental Index Funds. Fundamental Index strategies were among the first to hit the market within the strategic beta universe.
Schwab Market Perspective: Preparing for the Latter Innings
U.S. stock indices have continued to push to record highs, with little apparently able to throw them off course. The grind higher has pushed through natural disasters, the Las Vegas tragedy, domestic political failures, international political tensions, and missile tests and threats from North Korea—an ample “wall of worry” for stocks to climb.
The Waiting: Wage Growth and Inflation Finally Getting in Gear?
With wage growth picking up and the labor market even tighter, it’s time to put even traditional measures of inflation back on the radar screen.
Fourth Quarter Fun…or Folly?
The fourth quarter is typically an active one and we don’t think this one will be any different. Solid economic growth and good corporate earnings should allow the bull market to continue but we may experience bouts of volatility and/or pullbacks. Stay diversified and disciplined around your long-term objectives.
Comfortably Numb? An Update on Investor Sentiment
Stocks have bucked all manner of fierce storms—figurative and literal—and optimism (and possibly risk) has risen as a result.
A Cat and Mouse Fall
September has historically been a tough time for stocks and there are multiple potential pitfalls to look out for this year as well. But economic and earnings growth—both domestic and global—continues to look healthy and we expect the bull market to continue. Remain globally diversified, but also disciplined around target asset allocations; and use any volatility for rebalancing purposes.
Trying to Reason with Hurricane Season: The Aftermath of "Harma"
Our hearts go out to everyone affected by Harvey and now Irma. I did little over the weekend except sit glued to the TV watching Hurricane Irma coverage. That's because I have a home in Naples, FL, on one of the southern intercoastal waterways.
A Preview of Coming Attractions?
Action is about to heat up as summer comes to an end but investors should remain cool. Geopolitical threats, domestic politics, and Federal Reserve actions all have the potential to add to volatility and heightens the risk of a pullback or correction. But healthy economic growth and strong corporate earnings lead us to believe that the bull market has legs.
Radioactive II: Could the Tide Finally Be Turning for Active vs. Passive?
I'm often asked how I invest my own money and often imbedded in the question is whether I prefer active or passive investing strategies. My answer is always both, and at Schwab we generally believe investors can benefit from traditional active management; e.g. mutual funds; alongside newer passive vehicles; e.g. exchange-traded funds (ETFs).
The latest bout of volatility illustrates why investors should stay focused on the longer-term. Risks for a more substantial pullback in the near-term still exist, as valuations remain elevated; but we believe solid U.S. and global economic growth, strong earnings, low inflation and still-ample global liquidity should allow the bull market to continue.
Twist and Shout: United States Takes on North Korea … Implications for Stocks
Last week, President Trump promised to unleash "fire and fury" on North Korea, which prompted its leader Kim Jong Un to see that bid and raise it to a direct threat against the U.S. territory of Guam. Collectively at Schwab (Schwab Center for Financial Research as well as our experts in Washington, DC) we believe the likelihood of military action remains low.
Schwab Market Perspective: Things are Looking Good … But are They Too Good?
U.S. equity indexes continue to post record highs and the proverbial "wall of worry" appears to be losing bricks. The high expectations for earnings season have largely been bested, the U.S. economy continues to trend in a "Goldilocks" zone—not too hot, nor too cold...
Big Time: An Update on Our U.S. Large Cap Bias
Having recently upgraded our view on developed international markets (hat tip to Jeffrey Kleintop), we are now recommending investors keep their allocations to all three major equity asset classes—U.S., developed international and emerging markets—in line with strategic targets.
Fed Keeps it on the QT
Much to no one's surprise, the Federal Reserve held off on raising short-term interest rates; keeping the fed funds rate in a range of 1.00-1.25%, in a unanimous vote. Although they did not say anything explicit, there were a few niblets on which to chew in the statement accompanying the meeting.
Schwab Market Perspective: Are Danger Signs Rising…or Will the Bull Run Continue?
Are risks growing or will the bull market continue? We believe the answer to both is yes. Political bumbling, monetary policy shifts, and geopolitical tensions have all escalated, but the bull continues to power ahead, largely unscathed by the tumult that surrounds it.
Smooth Sailing for Stocks?
The environment for U.S. and global stocks continues to be in decent shape, but some risks are elevated and the possibility of a pullback exists. A notable potential driver of bouts of volatility could be U.S. and global central bank policy as they sail toward monetary policy normalization.
2017 Mid-year US Equity Outlook: Rattle and Hum
We say goodbye to the first half of a tumultuous, but rewarding, year and look ahead to the second half to see what might be in store for the U.S. economy and stock market.
Schwab Market Perspective: Shifting Sentiment?
A bit of volatility returned to Wall Street, with indexes pulling back from record highs and the leading sector performer to this point in the year, technology, experiencing a decent-sized pullback. Meanwhile, we've seen a flattening of the yield curve, which suggests the bond and stock markets may be sending conflicting economic signals.
The Space Between … Tech Today Doesn't Resemble Tech Circa 2000
Tech "wreck?" That's a bit of a stretch in my opinion; but the financial media loves a good headline. The major ascent—and recent pullback—of the so-called FAANG stocks (Facebook, Apple, Amazon, Netflix and Google) has generated much attention; and lately, the subject of technology stocks more broadly has dominated Q&A sessions at events at which I've spoken.
Goldilocks…or the Three Bears?
Goldilocks appears to be taking up residence on Wall Street, with modest growth, low inflation and a cautious Fed combining to make things "just right" for investors. Additionally, the apparent improving global trade trend could help contribute to further stock market gains and support large-cap outperformance. But the risk of a pullback and/or sharp acceleration in volatility is elevated courtesy of both domestic and world political uncertainty, and the potential of a Fed misstep.
Turn Down For What: Why is Job Growth Slowing?
The pace of job growth has slowed, but it’s likely not because the economy is weakening. It may even be because the economy is strengthening.
Unprecedented! Or Maybe Not?
Both political uncertainty and Fed policy changes could contribute to increased volatility, but solid economic and earnings growth—both in the United States and globally—should help the bull market to continue. We suggest looking past the political rhetoric for the most part and focusing on economic developments and the long-term stability the United States provides. Globally, we’re seeing improving growth, but China is a concern that bears watching and emphasizes the need for a globally diversified portfolio.
Gimme Three Steps … and a Stumble?
"Three steps and a stumble" was first illustrated by Edson Gould, the legendary market technician from the 1930s through the 1970s. Ultimately the baton was passed from Gould to another legendary market analyst (and my mentor/boss for my first 13 years in this business), Marty Zweig, who incorporated the "rule" into his monetary policy indicator.
Sell in May…or Settle In?
Subscribing to the "sell in May" theory has not always been financially rewarding, so be cautious about trying to trade around any likely volatility. The U.S. economy is growing, but not too fast, earnings have accelerated sharply, and fiscal tailwinds are still blowing. There is the potential for a retrenchment in the gains in emerging market stocks in the near term, but sticking with a diversified portfolio is important. Pullbacks are possible but stay focused on fundamentals and your long-term goals.
Strange Brew: Heightened Uncertainties, Yet Plunging Volatility…What Gives?
Much ink has been spilled lately by the financial press on the dramatic move down in market volatility as measured by the CBOE Volatility Index (VIX), to the lowest level since February 2007.
Schwab Market Perspective: Should Sharp Sentiment Shifts Mean a Change in Strategy?
Recent market action has all the markings of a relief rally. The French vote in favor of centrist candidate Macron took "Frexit" off the table for now; a new tax cut proposal by the Trump administration, and the decreasing likelihood of a near-term U.S. government shutdown all appeared to play a part in the sharp rise in stocks and plunge in volatility.
½ Full: Seeing Through a Weak Q1
As I've often noted when it comes to the relationship between economic data and the stock market, "better or worse tends to matter more than good or bad." In other words, stocks tend to key off rate of change more than level when it comes to economic indicators.
Schwab Market Perspective: Reassessing Risk and Reflation
Investors appear to be taking another look at the risks they are willing to take, while also considering whether the reflation story may not develop as hoped. Reflation is the process of getting economic growth and price broadly back to pre-recession levels. While progress has been made, growth is still not accelerating.
One of These Things ... Market's Moves Not All About Trump
Trumponomics, the Trump Trade, the Trump Rally—and more recently Trumpocalypse—you've heard them all. Now you'll read a story (and perhaps hum a tune) about economic inflection points and a stronger stock market which may have had little to do with the results of the election.
Schwab Market Perspective: Working off the Froth
After a party is over, and the host turns on the lights, the picture often looks quite different than it did just a few minutes before. The realities of the U.S. political process are being recognized and the "hard" economic data is not yet living up to the "soft" (confidence/survey-based) data.
Hard Times: Time for the Hard Data to Catch Up to the Soft Data
Much ink has been spilled by Wall Street analysts, the media, and yours truly, about the historically-wide spread between the so-called "soft" and "hard" economic data. Before getting to my latest thoughts on the subject, some definitions are in order.
Schwab Market Perspective: Teflon Market
Nothing seems to be able to phase the stock market recently. Political infighting, Presidential tweets, North Korean missile launches, oil falling below $50, European political uncertainty, higher bond yields, and the Fed raising rates: none of those forces have knocked stocks off their recent uptrend.
Big Machine: Why Large Caps Are Likely to Outperform
Many investors are wondering whether the stock market has come too far too fast. The latest consolidation brought the S&P 500 down only 2%, but the average stock was down more than that.
The stock market's rally resumed following the President's comments on tax reform and investor optimism continues to rise. There are solid economic supports for the market's surge, but gains may have gotten a bit ahead of themselves and a pullback should be expected at some point. As lovely as "melt-ups" feel while they're happening, a healthier pattern for stocks is to consolidate gains after significant rallies. Fundamentally, earnings have been solid, supporting the rally, but there are risks there as well as doubt about the "stickiness" of pricing power increases. Stay patient, diversified, and remember the power of rebalancing. We believe this secular bull market still has legs, but discipline is essential.
Radioactive: Is Passive’s Dominance Over Active Set to Wane?
One of the key themes I and my strategy colleagues highlighted in our 2017 outlook was the regime change from monetary policy being the only game in town to fiscal policy taking at least one of the reins.
Better Days: Earnings Growth Picks Up Sharply in 2017
Much ink spilled these days—including by yours truly—tends to be of the macro variety. This is for good reason as studies have shown that macro forces have been greater determinants of asset class performance than traditional underlying fundamentals.
Schwab Market Perspective: Not So Fast!
Since the Dow finally breached the 20k mark, equities have been largely range-bound. The enthusiasm seen in measures of investor sentiment following the election of Donald Trump has waned a bit as the realities of policy priorities—and getting things done in Washington—begin to set in.
Fed Leaves Rates Unchanged
In a unanimous vote, the Federal Open Market Committee (FOMC) left interest rates unchanged at its two-day meeting which concluded today; however the statement noted rising confidence among business leaders and consumer in the period since the election.
Rise Up: Dow 20k Fails to Thrill Individual Investors
The Dow's flirtation with 20k went on for weeks, with the financial networks breathlessly reporting on every tick as it approached the milestone—subjecting them to much lighthearted ridicule on Twitter and the like.
A New World
The world is changing for investors but we believe it's largely in a positive way, although there will be bumps along the way. The recent sideways equity movement was a healthy consolidation of the post-election gains, and we suggest investors add to U.S. equity positions as needed at the expense of some developed market international exposure. Inflation is ticking higher, and the Fed is becoming more hawkish, but the conditions supporting those moves are also positive supports for stock.
A Perfect Mix?
U.S. stocks have been consolidating gains seen in the aftermath of the November presidential election, a healthy process following such strong gains. Further appreciation should be supported by improving U.S. and global economic and earnings growth. Disappointments are likely on the U.S. policy front but we would view those as buying opportunities for now.
Luminous Times: Looking Ahead With Optimism About 2017
In conjunction with the publishing of a summary of Schwab's 2017 outlook across asset classes; this report is a more detailed summary of my 2017 outlook, with a dash of rear-view mirror analysis of the year just ended. Each of the broad topics discussed below will be further unpacked over the next couple of months in individual reports.
Fed Shocks No One and Raises Rates
The Federal Reserve surprised no one today and the vote was unanimous. The Federal Open Market Committee (FOMC) raised the federal funds rate by 25 basis points—to a range of 0.50-0.75%—for the first time this year; having raised rates initially a year ago at this same time.
Schwab Market Perspective: Will the Momentum Continue Into 2017?
November turned out to be an excellent month for the major U.S. stock indexes, with all three, plus the Russell 2000 index of small caps, hitting record highs.
You’ve Got to Earn It: Valuations Aided by Improving "E"
The stock market has had an excited run since the presidential election, with heightened optimism for growth looking ahead into 2017. Not to rain on the optimists’ parade, but there was actually ample evidence of improving growth before the election.
Emotional Rescue: What to Make of the Post-Election Surge?
Since the pre-election low on November 4, the S&P 500 is up 4.7%, while the Russell 2000 (small caps) is up a whopping 13.8%—rallies which have confounded many investors given the pre-election consensus that stocks would fall on the uncertainty associated with a Trump victory.
Is the Fog Starting to Lift?
The election is over but some uncertainty remains, which means bouts of volatility are likely to persist. The Fed is likely to hike rates in December but uncertainty about the path of rates in 2017 will persist. Additional uncertainty may come from elections around the world, with the potential for a continuation of surprising outcomes that could rattle markets at times.
Trump Pulls Off an Upset
Donald Trump has pulled off an astonishing upset to win the White House, securing at least 288 electoral votes as of 3:30 a.m. EST to defeat Hillary Clinton.
Trump Wins: What Happens Now?
Our view, expressed over the past month, was that a surprise win by Donald Trump would likely be one of the most unsettling outcomes for the markets. Indeed, that has come to fruition.
Welcome to the Working Week: An Update on Jobs
Given election-related distractions this week, today’s report will be chart-heavy and word-light; but on an important topic. Last Friday’s jobs report garnered much attention given its proximity to the next Federal Reserve meeting.
Looking Past the Election
Stay calm and carry on. We believe U.S. earnings and economic growth will continue to support an ongoing bull market, but gains will likely be modest and pullbacks should be expected alongside political and monetary policy uncertainty. Globally, wage growth is picking up, but that doesn’t have to mean bad news for profits.
Vertigo: Effect of Spiking Healthcare Costs on Consumers
A burgeoning topic of conversation during Q&A sessions at my recent client events has been elevating healthcare costs and their impact on the consumer and the economy.
Schwab Market Perspective: Spinning Our Wheels
U.S. equity indexes have made little headway over the past few months, but flat is relatively impressive given the obstacles of Fed and election uncertainty, some softer economic data, downgrades in earnings, and valuation concerns.
Your Time is Gonna Come: Households’ Leverage Down, Government Leverage Up
Over a weekend when I thought, “there are no words…” so often, this report will have few words, but a lot of charts and tables. Speaking of the election, it’s been remarkable that, given the ample deficits of both presidential candidates, rarely do either discuss the country’s deficits or debt.