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.

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.

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.

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.

Liz Ann Sonders highlights two things about the so-called trade war with China that she believes don’t get the attention they deserve.

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.”

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.

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?