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.
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.
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.
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.
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.
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.
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...
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.