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Dog Days Are Over: What a Week!
by Liz Ann Sonders of Charles Schwab,
Volatility … and the volatility of volatility … hit record levels last week. We believe this is just a correction; not the beginning of a new bear market. Weeks like last week provide valuable lessons for investors about crowd psychology and the benefits of diversification and rebalancing.
Schwab’s Perspective on Recent Market Volatility
by Team of Charles Schwab,
Global markets may have swung wildly in recent days, but we think the recent selloff in stocks and commodities is not a sign of imminent global recession. However, it may prompt the Federal Reserve (Fed) to postpone raising U.S. interest rates for a while longer. In the meantime, the basics of successful investing remain the same: Sticking to your long-term investment plan and maintaining a well-diversified portfolio should help you weather the market storm.
Panic Is Not a Strategy—Nor Is Greed
by Liz Ann Sonders of Charles Schwab,
Admittedly, the development of a long-term strategic asset allocation plan isn't the hard part—it's sticking to it that often becomes the real challenge. Adding to underperforming asset classes and trimming outperforming asset classes goes against the emotions of fear and greed that often drive investment decision making. But if we learn from our mistakes, use our brains over our hearts and look to our portfolios as rebalancing guides, we can expect a more successful investing future and maybe even get a free lunch along the way.
Schwab’s Perspective on Recent Market Volatility
by Team of Charles Schwab,
Global financial markets endured their worst week of the year this past week amid concerns over slowing economic growth and currency woes in China and other emerging markets, among other reasons. At times like these it is easy to start thinking short term, but keep in mind that the foundations of investing success are well established (have a plan, keep a close eye on expenses, stay diversified, and make sure your portfolio composition is lined up with your tolerance for risk and the timetable for when you’ll need to start drawing down the portfolio).
The Tortoise Wins Again?
The narrow trading range for US stocks continues, but there are some concerning signs such as seasonality and technical issues that make us a bit more cautious in the near term. We don’t think the bull market is in danger of ending, but there could certainly be a pullback and we don’t believe investors need to be in a great hurry to put money to work. In the immediate aftermath, China’s move on its currency rattled markets, but we don’t think it’s the start of a currency war, and hope that this is part of a herky-jerky path to freer markets.
Schwab Market Perspective: The Calm Between the Storms
Peak earnings season is behind us, Greece is not in imminent danger of exiting the euro, Europeans have headed out on vacation and the US Congress won’t be far behind. After a volatile start, the US market appears to be settling into a more typical summer pattern—for now.
The Song Remains the Same? Higher Rates Don’t Typically Kill Bull Markets
by Liz Ann Sonders of Charles Schwab,
Because we don’t anticipate any fireworks—or even notable news—out of the July Federal Reserve meeting, we are not publishing a dedicated report on the meeting or the accompanying statement. However, we are keenly aware of the attention on the Fed and the likelihood it begins raising short-term term interest rates this year. Our view remains that September is the most likely month, barring any significant change in the trajectory of job growth in the next two months.
Schwab Market Perspective: Slow Summer?!
Summer is supposed to be a time of slow trading, light news, and an opportunity for vacations. But the past several weeks have been anything but slow. Greece—a country representing 0.38% of the world economy based on gross domestic product (GDP), has dominated attention; China’s recent stock market plunge also dented sentiment among US investors. It’s meant the “running to stand still” characteristic of this year’s first half is persistent. In fact, the first half of the year saw the S&P 500 trade in its narrowest range in history.
Independence Day?: “Greferendum” on July 5 Rocks Markets
by Liz Ann Sonders of Charles Schwab,
“Greferendum”… the new “it” word of the day. In the United States, we celebrate Independence Day on July 4; but investors today are more interested in whether the following day will mark an independence day for Greece. As last week came to a close, Greek Prime Minister Alexis Tsipras walked away from talks with his country’s creditors and announced a referendum scheduled for July 5.
Not Too Hot…
Despite the narrow range for US stocks this year, things can change quickly. We believe volatility will pick up over the next several months as we head toward the Fed’s initial rate hike. Across the pond, the best we may be able to hope for with regard to Greece is another “kick-the-can” solution. But any potential damage should be relatively contained due to the work done in the Eurozone over the past five years.
Joining the Dots: Fed Keeps Rates Unchanged While Lowering “Dots”
by Liz Ann Sonders of Charles Schwab,
The Federal Open Market Committee (FOMC) kept the fed funds rate unchanged from its 0-0.25% range, where it’s been since 2008. The decision was unanimous. The Fed did raise its assessment of the economy and labor market, which reinforces the view—shared by us—that the Fed will begin hiking rates in September, barring a significant change in the trajectory of the economy, jobs or inflation. It would be the first interest rate increase in almost 10 years.
Tug of War
The current stalemate in the US market could continue for some time, with bouts of volatility and pullbacks expected as the market anticipates the initial rate hike. Be prepared by staying diversified and consider buying protection, but we would view such an event as the pause that refreshes and help set up the next sustainable bull run. Investors should also look overseas as the aggressive stimulus measures being taken by the ECB appear to be beneficially impacting the economy, and may help equities perform better in the coming months.
No Quarter: GDP Goes Into Reverse Again
by Liz Ann Sonders of Charles Schwab,
Although last week was shortened by the Memorial Day holiday, it was busy on the economic front. Last in, first out: The expected downward revision to first quarter real (inflation-adjusted) gross domestic product (GDP) brought it into negative territory, for a reading of -0.7%—albeit better than the -0.9% consensus expectation. More on that in a minute.
Schwab Market Perspective: As the World Turns
A market that grinds higher isn’t all bad as it allows time for earnings to catch up to prices; but complacency must be reined in. Sharp movements could and should come as we move closer to a potential Federal Reserve rate hike. We believe the US economy will rebound from the weak soft first quarter, helping to support stocks and a rate hike, but the turn needs to gain traction. Meanwhile, Congressional approval of fast track trade authority could pave the way for improvements in the Japanese recovery.
Watching and Waiting
Patience can be tough, especially in investing, but that is what is needed at the present time. While a sharp upward move in equities seems unlikely, and the risk of pullbacks is elevated; a grind higher is not something most investors should miss out on. Economic data and the Fed will continue to be in the spotlight, and we expect improvement that will lead to both a Fed rate hike and increased equity volatility—so be prepared. Across the pond, political uncertainty exists, but money supply should be the main focus, which could bode well for the possibility of future European equity gain
Who Is Afraid of the Inflation Ogre?
When many commentators and investors show a high conviction about something, it is perhaps a good time to explore how things could move in the opposite direction. After several trillions of quantitative easing (QE) from the major global central banks, and with trillions of QE likely ahead, the consensus appears spooked by the specter of global disinflation and deflation. The possibility of a higher inflation scenario seems to have fallen completely off the radar.
Schwab Market Perspective: Heads, Bulls Win; Tails, Bears Lose?
The bears can’t seem to grab hold of this market, but that doesn’t mean full-speed ahead for the bulls either. Grinding generally higher with increased volatility seems to be the course for now, but the possibility of a correction still exists. Diversification, discipline and patience is required. International equity exposure should be part of most investors’ portfolios, to a level commiserate with risk tolerance. European risks related to Greece seem to have lessened, while the Chinese stock market doesn’t appear grossly overvalued, although a pullback from the recent run is possi
House of the Rising Sun: Is Housing Staging a Turn for the Better?
by Liz Ann Sonders of Charles Schwab,
Economic data has been mixed-to-weak over the past few months; but some of the housing-related data has perked up and could be a bright spot for the economy in the medium-term. Some recent highlights include single-unit permits, pending and new home sales, mortgage applications, building materials sales, anecdotal strength via the Fed’s Beige Book, and the well-watched Housing Market Index (HMI), put out by the National Association of Home Builders (NAHB).
Slip Sliding Sideways
Volatility will likely continue and more sideways action could be in store for the US equity market. We believe US economic data will start to rebound, helping push stocks higher in the second half of the year. The Fed remains in focus, but a rate hike is not likely until the latter half of 2015, which has helped slow the dollar’s upward momentum; potentially comforting the market and letting businesses better react. Better near-term opportunities may exist overseas as the Eurozone economy is improving and Japan seems poised to rebound from soft data.
Running to Stand Still: Wild Swings Taking Market Nowhere
by Liz Ann Sonders of Charles Schwab,
Stocks have gone 28 trading days without back-to-back gains; a very unique experience historically. Uncertainty abounds, associated with Fed policy, economic surprises on the weak side, and earnings which have dropped into negative territory. Investor sentiment is swinging more wildly than is normally the case.
Will a Spring Thaw Lead to a Stock Surge?
US economic data has been soft, repeating a trend we’ve seen in recent first quarters. But we believe growth will again bounce back as some of the temporary weights drop off. US stocks should continue to grind generally higher—but with heightened volatility—aided by better data and a still-dovish Federal Reserve. But investors shouldn’t ignore international opportunities. Global growth generally appears to be improving and foreign central banks are largely easing monetary policy, potentially benefiting risk assets.
Will Dipping Data Lead To Dramatic Drop?
US stocks have been resilient, although there has been an uptick in volatility. Economic data has shown some softening, but we believe it is temporary in nature. However, the risk of a correction is elevated in our view and investors should be prepared for such a possibility by having a diversified portfolio and keeping a close eye on rebalancing opportunities after pullbacks. Meanwhile, investors should also look overseas for global diversification opportunities as monetary policy easing should help to bolster asset values.
Trampled Under Foot: Earnings Estimates Crushed; But Not Stocks
by Liz Ann Sonders of Charles Schwab,
The pace of earnings estimate cuts by Wall Street analysts and companies has been well sharper than the norm, suggesting the bar has now been set so low as to make it easier to hurdle. That’s what investors can hope for heading into the next earnings season; but the risk around earnings and valuation is unquestionably higher than it’s been in some time.
Rhyming…but not Repeating.
Stocks have recovered their January losses and have continued to move higher. While economic growth remains solid and we remain secular bulls, investors should be prepared for increased volatility and the potential for a near-term correction. Also, European stocks may be due for at least a pause and we suggest looking to add exposure to emerging market positions if needed. Staying well diversified and keeping an eye on rebalancing is the recommended strategy.
Self-Sustaining US Economy…So What Now?
The US economy appears to be in a self-sustaining phase of the expansion, which could mean more volatility as the Fed embarks on a tightening cycle. We remain confident the secular bull market is intact, but volatility has risen and we suggest investors who are over-exposed to US equities consider global diversification, with a preference for emerging markets. Europe appears to be stealthily improving, but Greece remains a flash point and Eurozone equity markets may have gotten ahead of themselves a bit.
Should I Stay or Should I Go: Global Diversification Could be 2015’s Winner
by Liz Ann Sonders of Charles Schwab,
Last year ended on a weak note for US equities; and January continued the trend; Divergences will remain a theme and likely keep volatility elevated; US investors haven’t felt the need to diversify globally…they should
Diverging Policies…Converging Economies?
The US economy should continue to expand but faces headwinds with weak global growth and a strengthening dollar leading to diverging central bank policies. Volatility has risen and the potential for a correction in the near term appears more likely. Nonetheless, timing the market in the shorter-term is dangerous, while the longer-term picture still looks positive for US equities. Across the pond, we remain skeptical much can be accomplished with the ECB’s QE program and continue to favor emerging markets over developed internationally. We also believe global diversification is becomin
Levitate: More Market Mood Swings in 2015?
by Liz Ann Sonders of Charles Schwab,
Secular bull market is likely intact, but 2015 could bring more volatility associated with Fed policy and/or global events. Longer-term sentiment suggests the ?wall of worry? is intact; but shorter-term sentiment is more troubling. Falling oil and rising dollar have generated loads of questions from clients ? history tells a generally positive story.
Your Time is Gonna Come: From Considerable Time to Patient
by Liz Ann Sonders of Charles Schwab,
Regardless of the obsession around the specific words used, the statement is somewhat par-for-the-course; and supports our consistent view that rates should begin rising at some point in mid-year 2015, that the US dollar will remain strong, and that the yield curve should continue to flatten (as a result of benign inflation keeping longer-term rates fairly low). Although our view is that the stock market will be at the mercy of more frequent mood swings, the secular bull market we believe began nearly six years ago should persist in 2015.
Glancing Back but Focusing Forward
The US stock market appears set for further gains into at least the first half of next year, although risks are elevated with valuations no longer discounted and looming rate hikes. There is hope that ongoing easy monetary policy by global central banks can help to bolster economic activity is areas such as the Eurozone, China, and Japan. But we are somewhat skeptical about stock market performance in developed international countries and favor emerging markets to start out the New Year.
Dont You Worry bout a Thing: Tell That to Individual Investors!
by Liz Ann Sonders of Charles Schwab,
Some attitudinal measures of investor sentiment show troublingly high levels of optimism. Longer-term sentiment surveys that separate individuals from institutions show something much, much different. These longer-term surveys suggest theres little risk that the wall of worry the market likes to climb is crumbling.
Rolling AlongFor Now
We remain optimistic that US stocks will likely continue to move higher, but warn against getting overly complacent as a pullback is always a possibility. The US economy is improving, the Fed is erring on the side of dovishness, and both corporate and consumer confidence are growing. The fall in oil should be a net positive for the US and global economy, and we are in a traditionally seasonally positive time of the year for equities. Global economies remain weak, but we are seeing a glimmer of hope from stepped up responses from foreign central banks.
Ben Bernanke: Too Big to Fail
by Liz Ann Sonders of Charles Schwab,
I shared the stage at Schwabs IMPACT conference recently with former Fed Chair Ben Bernanke (a goose-bumpy experience). He was remarkably funny; but also firm in his views about the merits of the Feds extraordinary efforts to stem the tide of the financial crisis. Notably, he strongly pushed back on the notion that QE is an inflation accident waiting to happen.
And the Winner isInvestors?
The pullback seen in October is now just a memory and stock indexes are again pushing into record territory. Seasonality and the election cycle are lining up with still solid earnings growth and an expanding economy to help support further gains. Complacency is a risk but we continue to believe the trend in US stocks is higher.
Black Dog: Are Plunging Oil Prices a Positive or a Negative?
by Liz Ann Sonders of Charles Schwab,
The bear market in oil prices is largely a positive for the consumption-oriented US economy, but there are caveats. Oil's plunge is more a function of increased supply and the stronger US dollar than it is of weaker global demand. Oddly, many investors are worried about the stock market because of oil's plunge; but history suggests otherwise.
Plot Twistor a Different Book?
Volatility could continue but equity investors should keep the longer-term picture in mind, which we believe is positive. The U.S. economy is improving and monetary policy remains quite loose. The international picture is more concerning but diversification is important across asset classes. We currently favor emerging markets within a diversified international portfolio.
Global Fears
Volatility could continue but equity investors should keep the longer-term picture in mind, which we believe is positive. The U.S. economy is improving and monetary policy remains quite loose. The international picture is more concerning but diversification is important across asset classes. We currently favor emerging markets within a diversified international portfolio.
One Thing Leads to Another: From Dividends/Buybacks to Capex
by Liz Ann Sonders of Charles Schwab,
The final revision to second quarter real GDP showed a healthy contribution by capex. Tide may be turning away from returning cash to shareholders toward capex; pushed by activist investors.Capex's leading indicators point to further improvement.
What PIMCO Management Changes Mean for Investors
by Team of Charles Schwab,
Bill Gross resigned from his role as PIMCOs Chief Investment Officer to join Janus Capital. The PIMCO funds on the current edition of Schwabs Mutual Fund OneSource Select ListTM are not managed by Gross. There are no PIMCO ETFs currently on Schwabs ETF Select ListTM. A list of funds formerly managed or co-managed by Gross is available below.
Clear Sailingor Choppy Seas?
We are at a tenuous point in the market seasonally speaking and a pullback is quite possible. We dont recommend trying to time a potential correction, however, as that is virtually impossible and exposes investors to missed upside opportunities waiting on the sidelines. Elsewhere, the international picture looks a little shaky, but diversification is important and we do favor emerging markets within an international portfolio.
Fed Keeps Considerable Time But Ups Rate Expectations Through 2017
by Liz Ann Sonders of Charles Schwab,
The Fed kept its statement largely intact relative to Julys; opting to retain the much-ballyhooed considerable time phrase. It was confirmed that QEs tapering would be concluded by the end of October; while the Feds rate expectations were increased. Yellen took great pains to explain that considerable time should not be considered calendar-based guidance.
Schwab Market Perspective: Diverging Paths…Growing Risks?
by Liz Ann Sonders of Charles Schwab,
The U.S. stock market continues to reach new highs but sentiment is extended and we are entering a period that has historically seen weakness. We believe the ultimate trend is higher, but bumps could get more pronounced in the near future. The U.S. economy is improving, with data suggesting self-supporting expansion is taking hold. Whether this means accelerated Fed interest rate hikes is being closely watched, while midterm elections often inject some more uncertainty into the market. The European Central Bank (ECB) finally acted, but structural issues and lack of demand remain problems.
Back in the Saddle Again: Time to Pull in the Reins?
by Liz Ann Sonders of Charles Schwab,
Interest rates and seasonal tendencies are taking some attention away from the stronger economy and pose short-term risks for the stock market. Another pullback would be welcome from a sentiment perspective and would not dent our longer-term optimism that we are in a secular bull market that still has room to run. But just as fear has been the strongest emotion keeping many investors out of this bull market, greed is an emotion to rein in as well.
Sound Familiar?
Stocks seem likely to continue their upward momentum although volatility could increase with Federal Reserve interest rate uncertainty combined with midterm elections and geopolitics. An improving economy, decent valuations and a still-accommodative Fed leave us confident that dips should be viewed as buying opportunities. Conversely, Europe is looking worse and we would be cautious in adding new cash at this time, concentrating additional international exposure instead on China and to a lesser degree Japan, always with a diversified portfolio in mind.
Skittishness
Stocks suffered some of their bigger daily and weekly declines of the year recently with geopolitical and Fed concerns the likely culprits. We dont believe this was the start of a sustainable downtrend, although there could be further selling to come in the near-term. The U.S. economy appears to be strengthening, leaving us optimistic on the longer-term outlook for stocks. Likewise, worries over the Fed and the timing of the first rate hike have increased, but the initial stages of a tightening cycle tend to be positive for equities.
Summer Void
Although Wall Street and other corners of the business and political world may empty over the next few weeks, risks of a pullback in U.S. equities have gone up. Although we believe it would represent a buying opportunity and are optimistic longer term due to improving economic growth, nervous investors may want to consider a hedging strategy. China's stock market performance has improved and we remain positive, while European economic data has been more concerning, although the stocks still look attractively valued in our view.
Getting Closer: Fed Continues its Tapering & Moving Toward Rate Hikes
by Liz Ann Sonders of Charles Schwab,
The Fed continues its taper; moving closer to rate hikes. Strong GDP report elevating chatter about possible earlier-than-expected rate hikes. Although volatility/pullbacks are possible, history shows initial rate hikes are NOT negative for stocks.
Bull Stumbles
Any near-term correction would be healthy in the context of an ongoing secular bull market. Trying to time the market is always difficult, even though the market is in a potentially weak phase, both in terms of the annual and election cycles. And while sentiment is elevated in the United States, both Europe and China provide opportunities to invest where the mood is decidedly less enthusiastic.
One Step Closer: Public Sector Taking Deleveraging Baton from Private Sector
by Liz Ann Sonders of Charles Schwab,
The budget deficit has plunged; but government debt remains extraordinarily high. Private sector deleveraging began alongside the financial crisis; and may be largely in its finale. Objective measures of household/consumer stress have come down markedly.
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