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?
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.”
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.
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.
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.
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?
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.
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.
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.
Job growth remains strong and the importantly-lagging unemployment rate ticked up for “good” reasons; but the skills gap remains ample.
Halfway through 2018, the S&P 500® Index, which represents the broad U.S. stock market, had gained 2.7%—a relatively modest return that belied the drama of the first six months of the year.
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.
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.
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.
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.
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.
The May employment report was gangbusters, with strength across most components, including payrolls, the unemployment rate and wage growth. Can it continue?
Stocks have rebounded along with economic data, could we be setting up for a solid summer?
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.
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.
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.
Since tax reform was passed the corporate earnings jump has been extraordinary…but is the good news already priced in to stocks?
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.
The yield curve has flattened significantly recently and has elicited headlines of impending doom, heightened recession risk and investor consternation…is the worry overdone?
There have been some violent market moves recently, but it’s important for investors to keep things in perspective.
Headlines have been focused on tariffs, trade and the FAANG stocks; but underneath the surface may be a more important shift toward tighter financial conditions.
The stock market environment has changed since January, making it more challenging but also creating potential opportunities.
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.
Goldilocks reappeared last week with an extremely strong jobs report that gave stocks another reason to cheer the ninth birthday of the bull market.
Stock market volatility appears to be largely a consequence of the economic environment returning to a more “normal” status.
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.
In a record-breaking sprint from all-time highs to an “official” correction, the “short vol” trade unwinding exacerbates an initially fundamentals-driven decline.
Volatility has spiked, jolting investors out of complacency, but that doesn’t mean any dramatic action is needed.
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.
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.
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.
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.
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.
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.
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.
The book is closing on third quarter earnings, which were stellar; but is it time to worry about a bar set too high in 2018?
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.
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.
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.
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.
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.
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.
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.
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.
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.