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Market Fatigue?
Market action has been relatively muted, notwithstanding the first 1% down day of this year. After the strong run to start the year, another pause or pullback would not be surprising but we continue to believe the upward trend will largely stay intact. Uncertainty abounds as to whether the Fed will unleash a new round of easing but liquidity remains abundant. Rhetoric continues in Washington but any substantial fiscal or tax policy action this year seems unlikely, despite the many challenges that are looming.Europe has stabilized somewhat but risks remain elevated.
Black: Swans and Crude
by Liz Ann Sonders of Charles Schwab,
Economic/financial "black swans" are generally more dire than geopolitical ones.
The Middle East is today's hotbed for potential geopolitical crises.
Oil is taking the brunt of the pressure, but it's not necessarily the death knell for stocks or the economic recovery.
Schwab Market Perspective: Two Steps Forward...
US stocks and economic data appear to be moving at least two steps forward for every step back, which we believe leads to a strengthening trend for bothalthough there are inevitable bumps along the way. We believe the agreement in Washington to extend the payroll tax through 2012 may be the last substantial economic-related agreement before the election, but there are major issues looming. The Fed continues to believe another round of easing may be appropriate, which we think could be dangerous and that they should be looking to move in the other direction.
Missed Opportunities?
Investors eased back into stocks to start the year. This is the start of a sustainable trend, but equities rarely go up in a straight line and near-term caution may be warranted. Another deadline is approaching for Congress and the President to make a deal. Something will get done, but any hopes for substantial action remain dim. Markets appear to be more comfortable with the European debt crisis and the risks associated with it. Central banks around the world are easing, which could help support international stocks in the coming months.
Sunday Bloody Sunday: Hoping For a Giants Win
by Liz Ann Sonders of Charles Schwab,
The "January effect" stock-market indicator bodes well for the rest of year.
A "golden cross" occurrence would also add fuel to the market bulls' fire.
Sentiment looks frothy in the near term, but the "wall of worry" remains intact.
I think the market is vulnerable to a pull-back in the near term, but likely remains in a bull market, with further gains to come. It's also worth noting that February has not been a great month for the stock market historically. But, if the Giants win on Sunday, my mood will improve.
Slow Road to 'Normal?'
Market volatility has fallen and tight correlations have loosened, indicating to us some calming of fears and increased attention on more traditional economic and earnings-related news. This is a good sign for stocks in the foreseeable future. The Fed unveiled its new communication strategy after its most recent meeting, reiterating that interest rates will likely remain extremely low for some time. The European picture is brightening slightly and there may be a glimmer of hope for stock market investors. After a soft patch, global growth may be turning around.
Journey to the Center of the (Fed's) Mind
by Liz Ann Sonders of Charles Schwab,
The Federal Reserve opted to keep short-term interest rates on the floor and extended the period of time during which rates are likely to remain near zero.
Newly published forecasts show slightly better growth, a bit less inflation and a lower unemployment rate.
Fed Chairman Ben Bernanke got hit with a lot of questions about the risks of extending zero-rate policy for 2 more years.
Rock Bottom: Housing May Have Already Hit It
by Liz Ann Sonders of Charles Schwab,
A comprehensive (read: long) and chart-filled update on housing suggests the bottom may largely be in. Pricing may have more downside and real mortgage rates need to decline further, but most other metrics are flashing green. New themes: housing becoming "local" again, and for now, renting is trumping buying.
Time to Climb?
The US economy continues to expand and has recently picked up momentum. Investors have been focused on European and US debt problems, but that may set up an environment for stocks to move higher. Many challenges await Congress. We're not optimistic that much progress will be made, but the rhetoric will almost certainly heat up as late-year elections loom. Recent policy decisions in Europe provide some hope but the region's banks continue to struggle and are pulling back on lending, which likely impedes growth. In China, policymakers attempt to keep growth from dipping below healthy levels.
True Reflections on 2011 and 2012
by Liz Ann Sonders of Charles Schwab,
The Dow Jones Industrial Average (DJIA) managed a gain for the year in 2011, but very few investors were cheering.
With inflation settling down, the upward boost to real gross domestic product (GDP) is likely being underestimated.
Although the eurozone crisis may keep volatility elevated short-term, 2012 is looking like a better year.
Remarkable Resilience
Despite a remarkable series of crises, the stock market was roughly flat on the year. Earnings increasing, inflation decreasing, and economic data improving, the environment for a renewed upward move may be in place to start 2012. There seems to be little hope from DC for any relief in the near term, but 2012 brings an election cycle that will likely have a major impact on the future of the US. A near-term implosion in Europe seems to have been avoided but real solutions remain absent and the risks for a greater economic pullback are growing, which would likely have global implications.
Early Santa Arrival?
Stocks have continued their seesaw pattern around developments in the European debt crisis. The major indices remain in the wide range we've been in for the last two years. Factors are setting up for a potential break above that range in the coming year. Expectations about progress in Washington are extremely low and near-term the biggest issues are the proposed extensions of the payroll tax cut and unemployment insurance. The increasing populist rhetoric is not helpful and any chance of major debt-reducing legislation occurring before the 2012 election seems remote.
Fed Ends 2011 with a Whimper
by Liz Ann Sonders of Charles Schwab,
There were no surprises out of the Fed meeting today, with short-term interest rates remaining pegged at zero. There was one dissenting FOMC member who wished for additional policy accommodation. Much of the Fed's near-term focus remains on the eurozone debt crisis.
Schwab Market Perspective: Short-term PainLong-term Gain?
Markets have been under pressure as the crisis in Europe has recently intensified, providing the impetus for more aggressive action and an eventual resolution, including this week's coordinated central bank actions. Economic data in the United States continues to be largely better than expected. The supercommittee failed to come to a deficit reduction agreement. While markets expressed initial disappointment, their failure may end up being beneficial as it forces spending restraint. As the euro crisis has deepened, some steps have been taken but mostly address liquidity, not solvency.
Deja Vu? Eurozone Crisis Today vs. 2008 Subprime Crisis
by Liz Ann Sonders of Charles Schwab,
News flow on the eurozone debt crisis is speedy, and the latest news of a fiscal pact brings cheers by stock investors for now.
There are many similarities between the 2011 and 2008 crisesbut even more differences.
The end of the "Debt Supercycle" has ushered in a period of heightened risk and shortened economic/market cycles.
Beyond the Supercommittee
by Team of Charles Schwab,
After months of negotiations, the Joint Select Committee on Deficit Reduction announced that it could not reach agreement, stating: "we have come to the conclusion today that it will not be possible to make any bipartisan agreement available to the public before the committee's deadline" The supercommittee had a deadline of November 23 to make recommendations to trim at least $1.2 trillion from the budget deficit. What's beyond the supercommittee? Schwab answers the key questions. Such as, why did the supercommittee fail? and are US Treasuries still a safe-haven investment? among others.
Supercommittee Update
by Team of Charles Schwab,
New this week: the real deadline for the supercommittee; why we think there's still hope for an agreement; President Obama's vow to veto legislation to "undo" automatic cuts if an agreement isn't reached.
What are the different deadlines for the supercommittee, and what do they mean? November 23 is the deadline by which the supercommittee must put forward recommendations to cut at least $1.2 trillion from the deficit. However, the supercommittee must post its recommendations publicly 48 hours prior to November 23, meaning the true deadline for finishing its work is Monday, November 21.
Every Picture Tells a Story: Market Charts Looking Good
by Liz Ann Sonders of Charles Schwab,
With so much focus on the macro, I thought an update on the micro would be welcome.
Several measures of sentiment, valuation and technical conditions show the market to be in pretty good shape.
Macro headwinds persist, but the expectations bar has arguably been set low enough to be easily hurdled.
Supercommittee Update
by Brad Sorensen of Charles Schwab,
What is the supercommittee?; What is the committee's official task?; What happens to the budget if the committee can't reach an agreement?; Is the committee making any progress?; If the committee can't come to an agreement, what effect could this have on the stock market?; If the committee does come to an agreement, what effect could this have on the stock market?; Is there a chance that Moody's will downgrade US debt as a result of the committee's work?; Will the supercommittee deliberations affect the municipal bond market?
Fed Fights for Relevance
by Brad Sorensen of Charles Schwab,
The Federal Reserve made no changes to their current course of action, but continue to leave the door open for additional measures.
The statement noted stronger economic activity in the third quarter and increased household spending but continued weakness in employment and housing.
Increasingly, it appears that the Fed is being pushed to the background, frustrating their attempts to get the economy moving and reduce the unemployment rate.
Born in the USA: A Look at What Could Go Right
by Liz Ann Sonders of Charles Schwab,
The expectations bar has probably been set low enough to be easily hurdled as the big market rally may be indicating.
Not only is recession risk fading in the near term, a very positive longer-term story is emerging, even though very few are in tune (yet).
Investors have gotten used to digesting worst-case scenarios maybe it's time to ask what could go right.
Missing the Forest for the Trees?
Earnings season was good and economic data in the US has improved. Robust growth is unlikely in the near future, but the economy is improving. Investors appear to be unconvinced that the picture may be brightening. Inflation continues to run higher than we'd like to see but sustainable price gains are unlikely. The Fed continues to be extremely accommodating. Italy has the potential to be a much bigger problem than Greece. A tentative agreement has been reached for Europe, but hopes for a true long-term solution remain thin. China is likely to suffer no worse than a soft landing.
Welcome to the Machine: High-Frequency Trading Domination
by Liz Ann Sonders of Charles Schwab,
Market volatility has spiked, starting with 2010's flash crash and culminating in this year's wild August, bringing asset-class correlations up with it.
High-frequency trading and the use of leveraged exchange-traded funds (ETFs) are the primary culprits, but the impact isn't all bad.
What are regulators doing and saying about the phenomenon?
Will the Micro Matter?
Q3 earnings season is in full swing and it will be modestly positive after numerous reductions of expectations due largely to economic concerns. The US will avoid a dip into recession and, for now, the data seems to support that view. The yield curve has flattened since the announcement of Operation Twist but mortgage applications have yet to jump and companies continue to cite concern over governmental policies for their continued caution. The EU debt crisis has had some positive movement, providing some hope to the market, but concern is growing over the state of the Chinese economy.
Million Dollar Question: Dollar and Recession Risk Up Together
by Liz Ann Sonders of Charles Schwab,
Recession fears have mounted, but the picture is still mixed and it's not yet conclusive.
The US dollar is winning the "least ugly" currency contest, but isn't helping stocks or commodities.
Short-term, a stronger dollar is a negative for riskier assets but not necessarily longer-term, if history's a guide.
Schwab Market Perspective: Perception vs. Reality
Economic data continues to reveal sluggish activity, and markets have been increasingly trading in a risk-on, risk-off mode. The Fed continues to try to stimulate greater economic growth, most recently with the announcement of operation twist. We have serious doubts this will engender any broad upturn. We continue to look toward Washington to move beyond short-term rhetoric and provide some serious long-term plans that allow businesses to have more confidence in the future. European policymakers continue to delay any real action, increasing the risks of an escalation of the debt crisis.
Fed Extends Maturities
Fed Notes-The TwistObservations and takeaways on the Fed's two day meeting this week.
Bank Bondsplus Extraordinary Calls on Trust Preferred SecuritiesWe elaborate on factors affecting the banking sector.
Obama Bill Questions Exemption on Muni bondsOur view on one piece of the job proposal presented by the Obama administration.
Liquidity- Ignore at Your PerilWe highlight some reasons why liquidity, especially in volatile markets, is an important investment factor.
Twist and Shout: The Fed, as Expected, Announced "Operation Twist"
by Liz Ann Sonders of Charles Schwab,
The Federal Reserve announced "Operation Twist," which was largely expected.
The goal is to further reduce borrowing costs and push money via lending out into the real economy.
Whether it will work is the big question because high interest rates are not the economy's problem.
Ultimately, confidence has to improve before we're likely to enjoy any reasonable pace of economic growth. Whether this move by the Fed starts the confidence-healing process remains to be seen. But we suggest you keep your expectations relatively low.
The End of the Line: Eurozone Crisis Hits Tipping Point
The growing likelihood of debt default by Greece rocks markets and sentiment.
Although the banking system is healthier today than it was in 2008, contagion risks are elevated.
The grand experiment of a unified currency in Europe is facing its greatest test yet.
Schwab Market Perspective: What's Next?
The economic debate continues between the recession and slow growth camps. We lean toward the latter but the argument may be just splitting hairs. The more important issue is what this sideways movement may mean for the market and jobs growth. There seems to be more disagreement among Fed members than we've ever publicly seen. Theyve laid out potential further stimulus but we believe their effects are likely to be limited. The European crisis continues to fester and some hard choices may need to be made sooner rather than later. Slowing European economies however, could help emerging markets.
1/2 Full: Not Throwing in Towel on Recession Probability
by Liz Ann Sonders of Charles Schwab,
Double-dip recession chatter is highly elevated, but I think we'll scrape by without one. Leading indexes are giving conflicting signals. Recession or not, growth will be weighed down by debt and lack of confidence. Let me state right up front that even though I'm not in the recession camp, risks that there will be one have risen markedly. A good deal of that risk relates to the breakdown in confidence triggered by the debt ceiling-related political antics, the subsequent downgrade of US debt by Standard & Poor's, the ongoing debt crisis in the eurozone and a highly volatile stock market.
Confidence Counts
Most of the normally historically-telling leading indicators continue to point to the US avoiding a recession. However, risks are clearly heightened as continued erosion of confidence could push perception into reality. The Fed continues to be divided on whether to attempt further monetary stimulus. We question if any efforts will have the desired impact. The Obama Administration and Congress continue to scramble to be seen as doing something to help, but also have limited policy options. European policymakers seem oblivious to the erosion of confidence.
Volatility Continues: Are the Markets Overreacting?
Selling pressure was heavy today as European banking fears combined with soft economic data. Risks have grown, but not all is in the negative column and markets may be overreacting.
Interest rates are near record lows, indicating to us a growing concern about growth and a search for safety.
Investing can be nerve-wracking in environments such as this, but we believe sticking with a well-devised long-term plan continues to be the best course of action.
Return to Recession.or Recovery?
by Liz Ann Sonders of Charles Schwab,
Soft economic data has caused talk of a return to recession to grow, leading to a return to the risk-off trade and a spike in volatility. We believe these fears and the market reaction are overdone and indicators still point to growth, but risks are high. The chorus calling for a new quantitative easing (QE3) program from the Fed has grown. We believe it's unlikely at this point. The European debt crisis continues to damage investor confidence as policymakers appear to be consistently behind the curve. Meanwhile, the economic slowdown could ultimately help emerging markets.
Panic Is Not a Strategy - Nor Is Greed
by Liz Ann Sonders of Charles Schwab,
Originally published in 2008, it's time for a refresher about the perils of panic.
Asset allocation, diversification and rebalancing are as close to a "free lunch" as you can get as an investor.
ThIn world where time horizons have shrunk precipitously, think longer-term.
Breaking Commentary: Fed Gains Disappear
Stocks fell sharply again today, continuing the extreme volatility seen recently.
Concerns over the state of the financial industry in France drifted into the United States, contributing to the sell-off.
Confidence appears very fragile right now and investors should use this volatility to judge their level of risk tolerance and adjust long-term allocations as appropriate.
Disappearing Act: GDP Loses Steam
by Liz Ann Sonders of Charles Schwab,
Although the debt deal remains top-of-mind, the latest GDP report's weakness didn't ease the angst.
The economy is now operating at "stall speed" and is at a crucial inflection point.
There's not much good news other than corporate profits, which have boomed.
Let's Make a (Debt) Deal and Crush the Market
by Liz Ann Sonders of Charles Schwab,
Today was about fundamentals, both here and in Europe. We got yet another batch of limp economic news today with weak personal income and spending; while we're still hung over from last week's hit to GDP growth for the first half of this year, and all of the recession's era. As a refresher, GDP barely grew at 0.4% in the first quarter and grew a paltry 1.3% in the second quarter. It didn't help that the S&P 500 crossed below its 200-day moving average, which often begets additional selling by the technically-inclined traders.
Shifting Focus
Some economic indicators are starting to perk up while corporate earnings have been strong as we wind down reporting season. Stocks will move higher in the coming months once confidence is restored. Whatever the near-term outcome of the debt debate, the US still has deficit issues to deal with and hard choices must be made to ensure economic stability for years to come. Europe finally arrived at their debt deal, but it likely falls short of what will eventually be needed. Meanwhile, China is key to emerging market performance and continues to deal with inflationary concerns.
On Your Mind: The Debt Ceiling, US Credit Rating and Potential Default
by Team of Charles Schwab,
We are disappointed in the continued inability of Washington to resolve the current short- and long-term debt issues. However, we do not believe now is the time to make major portfolio adjustments given US companies' continued strong earnings reports, few signs of a double-dip recession, and few signs that the bond market currently questions the fundamental ability of the US to pay its bills. Be prepared for more volatility as the political negotiations continue. Watch the VIX index for upward spikes indicating that investors are losing patience.
On Your Mind: Debt Ceiling and the US Dollar
by Team of Charles Schwab,
The uncertainty surrounding the upcoming decision on the debt ceiling has been a negative factor for the dollar. A US default and/or a downgrade of the US credit rating would almost certainly be negative also. It could weaken confidence in the dollar and cause it to fall. However, there are many global factors driving demand, including support of Japan and China, which continue to be large holders of US Treasuries. It would not be in their interest to sell dollar-denominated assets, including Treasuries, if there was simply a rating change or short-term default.
Staring at the Ceiling
by Liz Ann Sonders of Charles Schwab,
Everyone's focused on the debt-ceiling negotiations, impacting everything from market action to consumer confidence.
Default remains unlikely, but investors are wondering about portfolio positioning in the event the unthinkable occurs.
Behind the scenes, the news isn't all bad, as some economic readings and most corporate earnings releases have been pleasant surprises.
Earnings Heat Up
Earnings season is heating up and will provide a status update on the "soft patch" and where companies' confidence level lies. Stocks have been more volatile but are they telling us something about potential future direction? Debt ceiling talks continue in Washington, with a deal still likely to come in the final days before the supposed August 2 deadline. The make-up of spending cuts, tax changes, and any entitlement reform may be key to longer-term market reaction. Contagion fears are growing in Europe and solutions are difficult to come by.
On Your Mind: Debt Ceiling and the US Dollar
by Team of Charles Schwab,
Theres been a lot of media attention on the US debt ceiling and the outlook for the US dollar. Here we'll answer some of the questions weve been receiving from clients. The US debt ceiling: What are the chances of the U.S. defaulting on its debt? Will the United States automatically default if the debt ceiling isnt raised? When can we expect a resolution? What will happen if the United States does default? What does this mean for investors? Outlook for the US dollar: Is there a risk of the dollar collapsing in the short term? Is the world going to abandon the dollar as a reserve currency?
Sparks: Are Stocks Telling a Better Story For the Second Half?
by Liz Ann Sonders of Charles Schwab,
Investors continue to focus on the macro ? but the micro is telling a much better story.
There was lots of good micro and macro news last week.
Is the market's rally sending a signal that the second half of the year is looking up?
Expert Roundtable on Interest Rates
by Mark W. Riepe, Liz Ann Sonders, Kathy A. Jones, Rande Spiegelman & Brad Sorensen of Charles Schwab,
US short-term interest rates have hovered near zero percent for a record period of time. The Fed has kept the funds rate extremely low, not only to boost economic growth, but also to ward off the threat of a deflationary spiral. Given the economy's recent soft patch, we don't expect the Fed to raise rates too soon. But, at some point rates will rise, it makes sense for clients to start planning now. With this in mind, Mark Riepe, led a roundtable discussion of investment and debt strategies for both the current low-interest rate environment and a future point when rates begin to tick up.
Schwab Market Perspective: Dealing with Debt
Global governments are dealing with rolling debt crises equaling shaky investor confidence. We are concerned that many of the solutions weigh on growth prospects, but are hopeful about short-term resolutions that restore business confidence and lead to more investment and hiring. The Fed continues to hold steady, keeping short rates near zero and likely reinvesting maturing Treasury securities after QE2 ends. Greece passed the austerity package required to get short-term funding but much more is needed. And while the focus has been on Europe, it may be time to focus on the Asian region.
Heartbreaker: Soft Patch Hits Stock Market
by Liz Ann Sonders of Charles Schwab,
We remain in the soft patch versus double-dip recession camp, believing a lot of the weaker growth has been from temporary factors.
Investor sentiment has become decidedly pessimistic? a contrarian positive for stocks.
Market breadth also shows the market at extremes typically followed by a bounce.
Pause or Panic?
Economic data has deteriorated to the point that talk of a double dip recession has returned. The risk of another recession is low as most indicators remain well in expansion territory. Several factors are contributing to a soft patch, but a rebound is likely in the latter part of 2011. Along with talk of recession risk, chatter about the need for QE3 by the Fed has increased. The bar is quite high for QE3, but it is very likely the Fed will not let its balance sheet shrink in the near-term. Global growth is decelerating as well, with China tightening and Japan dealing with reconstruction.
Some Days (Months) Are Better Than Others
by Liz Ann Sonders of Charles Schwab,
May was a rough month for investors, though it ended on a sunnier note. A growth slowdown is evident, but the debate rages about whether its factors are temporary. We think May's risk-off mode is easing, but choppy action remains likely until longer-term worries subside. After an uphill ride in April, when the Dow was up 4%, May wasn't kind to investors, although the last two trading days brought some sunshine. It was the first time in nearly three years that the S&P 500 index had no up weeks in a month.
Results 1,101–1,150
of 1,204 found.
