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?

If you just woke from an 18-month slumber and looked at the market you might be fooled into thinking it’s gone nowhere; but what a ride it’s been.

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.

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.

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.

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.

Let’s talk what everyone’s talking about, the trade war with China and tariffs.

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 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.

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 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.

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.

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.

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.

The Leading Economic Index lifted enough in March to bring it back to a cycle high; but the deterioration in the trend bears watching.

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 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.

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.

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.

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.

Recession fears have risen and stocks have become more volatile, but is now the time to prepare for a sharp downturn?

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.

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.

The sharp rebound in equities seems to be in contrast to the deterioration in data, which could lead to near-term volatility.

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.

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.

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.

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.

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.

Stocks have rebounded off the lows but we don’t think we’re off to the races; issues remain and investors should remain vigilant.

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.

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.

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.

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.

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.

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.

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). 

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.

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?

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.

Volatility has ramped up but little has been resolved. Caution continues to be warranted as unresolved issues appear set to continue.

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.

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.

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.

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.

Although the runway between now and the next recession remains fairly long, there are some factors signaling that we may need to start the countdown clock fairly soon.

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.

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.

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.