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Above the Fray
Attacks on Libya and recovery efforts in Japan have dominated the headlines, but behind the scenes US economic growth remains solid and we remain optimistic on the stock market. Commodity prices have backed off a bit and the Fed is likely to see QE2 through to its June 2011 end. Of particular concern is the unwillingness or inability for Congress to agree on a budget that addresses the growing deficit issues in the US. Japan has a significant debt burden with which to deal as it rebuilds, while Europe is struggling to come up with a comprehensive plan to deal with the eurozone debt crisis.
Tilting Toward Energy
by Brad Sorensen of Charles Schwab,
Despite dramatic current events impacting markets, tactical shifts to your energy-sector allocation could add a small performance boost over the next several months. Volatility will likely remain elevated as events unfold in the Middle East and recovery continues from the devastating disaster in Japan. For investors looking to make shorter-term, tactical adjustments to a portfolio.
Focus on Japan Overshadows Fed Decision
by Brad Sorensen of Charles Schwab,
To no one's surprise, the Fed kept interest rates at near zero and maintained its scheduled purchases of Treasury securities (also known as quantitative easing, or QE2). We're growing more concerned that the Fed is keeping interest rates low for too long, leading to potential problems down the road. With the market currently reacting to the tragedy in Japan and the ensuing market volatility, it's important to avoid acting hastily.
Volatility on the Rise
Geopolitical unrest and rising inflation concerns have conspired to increase market volatility. We remain bullish on US stocks and believe that this recent increase in consternation will ultimately be healthy for stocks. The US government keeps kicking the debt can down the road, while the Fed seems unconcerned about inflation and is intent on completing QE2. We believe changes are needed at both entities to foster sustainable economic growth. The European debt crisis is bubbling up again, while the ECB is talking interest-rate hikes. Future growth depends on the path of both issues.
Moment of Surrender: Regimes Fall, Oil Prices Spike
by Liz Ann Sonders of Charles Schwab,
Geopolitical tensions swell along with oil prices, pushing the stock market lower. The absence of a longer-term oil- supply shock suggests the price spike could be short-lived. Consumers will take a hit, but the broader economy should avoid a double-dip recession.
Worry ... Friend or Foe?
Interest rates have moved higher, inflation concerns are growing, debt issues remain and global tensions are heightened. All valid concerns, but in our opinion not enough to derail stocks?although they could potentially in the future. Violence in the Middle East and North Africa is creating tension in global markets, but there are other concerns for emerging markets as well. Europe is becoming a bifurcated situation, with investors distinguishing between those with debt issues and those without.
Food Chain: Do Spiking Food Prices Warn of Generalized Inflation?
by Liz Ann Sonders of Charles Schwab,
Food inflation has heated up and has incited global unrest. But for now, it's unlikely to become a monetary phenomenon. Investors should expect geopolitical risk to stay elevated in 2011, with implications for emerging markets performance.
Balancing Act
Strong US economic signals and solid earnings continue to provide a positive backdrop for stocks. We expect pullbacks if optimistic sentiment gets too elevated, but remain optimistic about the stock market. Inflation concerns are rising, but the Federal Reserve is unlikely to react with tighter policy. There's not much it can do to fight commodity inflation, but Treasury yields are rising in response to headline inflation, even with little near-term risk of companies passing on rising costs.
Back in Black: Economy Moves to Expansion From Recovery
by Liz Ann Sonders of Charles Schwab,
Real GDP moves from recovery to expansion, but growth remains below potential. Inflation concerns globally replacing double-dip recession concerns as key theme in 2011. Egyptian unrest and rising volatility could further temper optimism, which could bring back the "wall of worry" the stock market likes to climb.
Schwab Market Perspective: Confidence Climbing
Although still relatively low, confidence is returning to businesses and consumers. We believe this confidence is well-placed and could portend healthy gains for the economy and the market as the year matures. Risks remain: commodity prices are rising, housing is still moribund, and federal and local governments have severe fiscal budget crises to deal with. Confidence in developed international markets is still lagging.
The Fed Sticks to the Status Quo
by Liz Ann Sonders of Charles Schwab,
The Fed announced no changes to its interest rate and quantitative easing round two (QE2) policies. There were no dissenters, with two new voting members changing their tune about QE2. The risk is growing that the Fed will stay easy too long, which could have implications for bond yields (and bond investors).
House of the Rising Sun: A Check-Up on Housing
by Liz Ann Sonders of Charles Schwab,
Housing is becoming less national and more regional in terms of strength/weakness. Affordability is up but so are foreclosures. Employment remains key to housing, but be aware of housing's diminished impact on the economy.
Further Fuel?
Stocks may be vulnerable to a near-term pullback thanks to elevated sentiment, and earnings season could provide an impetus for some profit taking. The economy appears to be strengthening and we remain optimistic. Despite signs of growth, the Fed seems insistent on letting QE2 play out, pointing to continued high unemployment and housing. The new congress also has to deal with these issues, while attempting to pare deficit spending. International exposure is important, but we recommend taking some profits and rebalancing if your emerging-market exposure gets above your target allocation.
Glory Days: Another Good Year in 2011?
by Liz Ann Sonders of Charles Schwab,
Setting targets doesn't make sense to us, but we do believe in reading the market's tea leaves, and the outlook is healthy. However, frothy sentiment has us a little concerned in the very near-term. Investors need to be mindful of complacency, but also to make sure they're not still loaded up on bonds?a major capitulation from bonds to stocks is possible.
Cutting Through the Noise
Economic data is rarely clear-cut, but we believe the weight of the evidence indicates a strengthening US economy. The negative rhetoric surrounding the Federal Reserve's recent decision reached a crescendo, but while we were among the first to voice our belief that it wasn't necessary, we believe the dire warnings of potential consequences from a second round of quantitative easing (QE2) are overblown. The European debt crisis continues to plague world markets. Finally, we believe the European Central Bank (ECB) needs to be more proactive instead of continually reactive.
Touch of Grey: Market Takes a Breather
by Liz Ann Sonders of Charles Schwab,
My best guess as to the scenario that is unfolding is that the economy is gaining traction, which could cause the Federal Reserve to pull QE2 into the dock sooner than expected. It could also lead to a lift in the dollar, a related pullback in commodity prices, and rising bond yields. Given the high correlation recently between bond yields and stock prices, if yields were to continue to rise, they could take stock prices up with them; especially if the reasons are a better economy and lessened deflation fears.
Down the Home Stretch
Economic data has shown signs of strengthening. We believe we could be emerging from the soft patch and that stronger-than-expected growth could be in the offing. The elections are done and the Federal Reserve made its move, but the question remains as to whether much-needed confidence returns to businesses. Additionally, housing remains a problem that may not be helped substantially by either event. Competitive currency devaluations are dominating the international conversation, while investors are flocking to emerging markets, making us a bit skittish in the near term.
Moment of Surrender: Musings on the Election and Fed Policy
by Liz Ann Sonders of Charles Schwab,
Neither the midterm elections nor the Federal Reserve announcement of another round of quantitative easing brought surprises. Tax clarity needs to come next while uncertainty about the implications of QE2 remains front and center. Investors will likely be among the winners, but they need to understand the pros and cons of Fed policy.
Schwab Market Perspective: So Now What?
The Federal Reserve and upcoming elections are in sharp focus and results and actions in these two areas could determine whether the momentum seen since September can continue. Earnings season was better than expected and the market reacted as such. But confidence remains a major issue, with brewing mortgage-related problems and continued uncertainty around tax policy causing consternation. Debt remains a major issue that's just now being addressed and protectionism still threatens economic expansion. China remains a bright spot for global growth.
Dirty (Paper) Work: Foreclosure Mess Gets Messier
by Liz Ann Sonders of Charles Schwab,
Moratoriums on foreclosures, and the reasons behind them, bring back fears of 2008 all over again. These fears will likely cement another round of quantitative easing by the Federal Reserve. Even if 'Foreclosure Gate' blows over, investors shouldn't make too little of a potentially big problem.
Is the Flattening Yield Curve Good For Stocks?
by Liz Ann Sonders of Charles Schwab,
The flattening yield curve has investors asking questions about what it means and whether it is bad for stocks. Charles Schwab is not concerned: Historically, a narrowing of the yield curve has been tied to stocks performing reasonably well.
Win, Lose or Draw: Do We Have a Win-Win Scenario?
by Liz Ann Sonders of Charles Schwab,
U.S. stocks are not expensive and they're most certainly under-owned. Most individual investors are either pessimistic or indifferent about the stock market, suggesting the 'wall of worry' - the contrarian nature of the market to perform best when pessimism is highest - is alive and well. In the near term, the stock market is likely overbought, and a little pullback to improve the sentiment picture would be helpful. On the other hand, however, strong stock market would be a terrific confidence builder, as Alan Greenspan noted last week.
2011 Taxes Remain in Limbo
Unless Congress takes action, most Americans will see their taxes rise next year. In this commentary, Charles Schwab handicaps the most probable outcomes of the tax debate, and provides helpful information for all investors and taxpayers. The most likely outcome, at 50 percent odds, is that Congress will simply extend all of tax cuts for one or two years. Republicans would unanimously support such a proposal, and several Democrats have signaled their support for the idea.
The Fed's Opponent: Deflation
by Michelle Gibley of Charles Schwab,
While there are downside risks, the U.S. economy will probably avoid a double-dip recession. Historically, a downward-sloping yield curve is the best recession predictor, and for now it continues to slope upward. Meanwhile, with interest rates already at historically low levels, lowering the cost of borrowing money even further is unlikely to spur economic growth and employment, and so quantitative easing is not the silver bullet for economic growth. Actions that give businesses increased certainty about how to plan for future operating costs in relation to demand growth are preferable.
Autumn Leaves... And Election Cycles
by Liz Ann Sonders of Charles Schwab,
The passion is palpable about the upcoming November 2 midterm elections, and more and more market watchers are starting to study the historical election cycle to see if it provides any clues as to how stocks are likely to behave in the near term. It's also September, historically the weakest month of the year for stocks, and this year it's following a bruising August. But here's a word of caution for those relying heavily on past performance trends: In five of the past six years, the market was actually up in September.
Land of Confusion ? Bubbles and Omens Dissected
by Liz Ann Sonders of Charles Schwab,
Charles Schwab is sticking with its view that the recovery is square root shaped (a 'V' followed by a stall), and there's little question that we've entered the stall phase. In addition to the havoc the stall has wreaked on stock market volatility, it's taken yields on Treasury bonds to near all-time lows. This, of course, has generated a very strong upward price move in bonds (as bond prices and yields move inversely) and much talk about a 'bond bubble.' That could be the case if yields move higher, which could trigger a swift move out of bonds as an asset class.
Perception Versus Reality
Market volume continues its traditional August swoon, making it difficult to gauge much from stock market action. Economic data continues to tell a mixed story, as growth slows and risks rise. Confidence is key to consumer spending, business investment and stock market performance. The Federal Reserve and the government are attempting to instill that confidence in the American public, but so far have had little success. Emerging markets continue to show signs of growth and China's market has been performing well. Germany also has posted some nice numbers lately, but Japan remains a concern.
Late Summer Slumber?
by Liz Ann Sonders of Charles Schwab,
The stock market rallied nicely in July after reaching the bottom of its recent range. Incoming data remains mixed but indicates that the economic expansion continues. However, risks remain elevated. The Federal Reserve downgraded its view and is discussing how to combat possible deflation, while federal and state governments continue to grapple with budget issues. Chinese growth has slowed, but the stock market is providing some positive indicators. Central banks around the world are creating a muddied picture.
Fed Downgrades Economic View
by Brad Sorensen of Charles Schwab,
The Fed isn't yet ready to raise interest rates, even though doing so could be beneficial. Raising rates would give savers a bit of a return in money market-type vehicles, potentially spur those now on the sidelines of the market into action, and give the Fed some wiggle room down the road should it need to slash rates again.
Back to Zero: Deflation Fears Emerge
by Liz Ann Sonders of Charles Schwab,
The current high correlation between stocks and bonds has only two historical precedents - periods when deflation was a reality, or when it was a fear. Low inflation is the reality today, but worries about deflation have still wreaked some havoc on markets. The latest rally may be based on a combination of waning deflation risk and the lessened likelihood of a double-dip recession.
Bull/Bear Standoff
by Liz Ann Sonders of Charles Schwab,
Bulls and bears both have strong cases. With earnings results and economic data indicating continued growth, we lean toward the bullish side?although risks to the bullish case are elevated. Uncertainty and concern regarding government actions continue to weigh on sentiment, while the Federal Reserve leaves all options on the table. Some questioned the credibility of European stress tests, but the market responded favorably. Meanwhile, China's growth appears to be moderating but remains relatively robust.
Double Trouble: A Slowdown, Not a Meltdown
by Liz Ann Sonders of Charles Schwab,
Double-dip recessions are historically rare, but fears about them are less rare. One key indicator has flashed a recession warning, but several more tell a more positive story. Investors need to be objective, not emotional, when reading the economic tea leaves.
No Surprises from the Fed
by Liz Ann Sonders of Charles Schwab,
The Federal Open Market Committee surprised no one with its decision to keep the Fed funds target rate in a range between zero and 0.25 percent, where it's been since December 2008. The new statement marked the first time since the economic recovery began last summer that the Fed had to slightly dial back its language about the pace of the recovery. Stocks rallied immediately after the announcement, but in light of rampant intraday volatility lately, it's way too soon to judge if there will be any longer-term impact.
Life in the Fast Lane: Volatility and Uncertainty Abound!
by Liz Ann Sonders of Charles Schwab,
A 'square root' recovery is the most likely scenario: a V-shaped initial recovery followed by a flat-line period of growth. With the peaking in the US leading indicators in April, a likely double-dip in the euro area, slowing growth in China and rising US taxes, the beginning of a soft patch for the economy is likely upon us. This next phase has been accompanied by heightened volatility, a characteristic that is unlikely to go away. However, the current rally off the recent lows has legs.
Some Days Are Better Than Others... Just Not These Days
by Liz Ann Sonders of Charles Schwab,
The wall of worry is back - and that's not a bad thing. Thanks to the correction, valuation has improved, while excessively bullish sentiment is no more. Growth estimates should be pared back for the second half of this year and next year, as well. Europe's debt crisis has become a deflationary event. The Treasury yield curve presently predicts the risk of a recession this year or next, however, as near-zero. The most likely shape of the recovery continues to be a 'square root,' with a V-shaped recovery followed by a leveling out of growth.
Senate Passes Major Financial Reform Bill
The US Senate approved legislation overhauling the regulatory structure of the financial industry?the most sweeping reform of the sector since the Depression. House and Senate negotiators must now reconcile differences between the newly passed Senate bill and the one that passed the House late last year, but lawmakers are shooting to send a final bill to President Obama for his signature by July 4. Key features of the bill are outlined, from a new consumer financial protection agency to significant reform of the credit-rating agencies.
Volatility on the Rise
by Liz Ann Sonders of Charles Schwab,
Volatility in stocks has increased during the past several weeks as investors have grappled with numerous global concerns. Is this the start of a longer-term problem or is it just a short-term phenomenon? Developments in the housing and job markets hold the key to further economic improvement. Meanwhile, the European debt crisis was addressed with a massive package, but long-term issues remain, and China's rapid growth rate could lead to overheating and inflation.
Schwab Sector Views: Sea Change?
by Brad Sorensen of Charles Schwab,
Market volatility has heated up during the past couple of weeks as more eyes have turned toward the debt problems plaguing Europe. After a nice run in equities, it's certainly not surprising to see some sort of pullback, especially in areas of the market that may have outperformed to start the year. The United States is entering a time of more-steady growth, with flattening leading economic indicators, which typically represents a shift in sector leadership. The information technology sector, for example, should outperform the market, while materials should underperform.
Typical Situation: Do We Have a V-Shaped Recovery?
by Liz Ann Sonders of Charles Schwab,
The same leading indicators that warned of the recession in 2007 have been recently pointing to a strong recovery in the United States and globally. Ignoring them in late 2007 and again in early 2009 were both mistakes, particularly from an investment perspective. Concerns over Greece and contagion gave the market some indigestion last week, but a period of consolidation was not unexpected given prior market strength. Overly bullish sentiment (a contrarian indicator) still needs some working off, but the technical underpinnings for the market remain healthy.
Resilience Resonates
by Liz Ann Sonders of Charles Schwab,
The stock market has absorbed numerous body blows recently, but continues to chug along?waiting for a big price correction to buy could be detrimental. Economic data remains solid, confounding some recovery skeptics and providing the Fed ample reason to slowly return to normalcy. European debt problems are growing and concerns over contagion are rising; there's no quick fix, and some politically unpopular decisions are going to have to be made.
Fed Stays the Course
by Brad Sorensen of Charles Schwab,
The Federal Reserve continued its recent pattern of holding short-term interest rates relatively steady, while cautiously upgrading its economic outlook. Kansas City Federal Reserve President Thomas Hoenig again dissented. It is possible that economic uncertainty in Europe pushed the Fed to keep the status quo. Greece continues to make headlines with its debt problems, and there are growing concerns of possible contagion. Standard & Poor's recently downgraded the debt ratings of Spain and Portugal to junk status.
Results 1,301–1,344
of 1,344 found.
