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.
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.
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.
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.
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.
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.
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.
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.