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What a Quarter! What’s Next?
The first quarter was the proverbial roller coaster, with stocks experiencing extreme volatility, but ultimately ending up back where they started. We continue to believe U.S. stocks are in a secular bull market; but in a more mature phase which will be dotted with volatility and pullbacks. Corporate earnings likely need to recover before stocks can move demonstrably higher. More clarity from the Fed and a better political environment would help, but both seem unlikely in the near term. However, a more dovish tone from the Fed has aided in some recent dollar weakening, which has boosted emerging markets’ performance. While it is an encouraging development, stay disciplined and diversified as we watch to see if global growth can improve.
Echo: Are Stocks Getting Back in Cycle?
by Liz Ann Sonders of Charles Schwab,
The stock market has familiar cycles dating back to at least the 1960s. The visual below (and the accompanying detailed set of tables below that) highlights these cycles and their direction. Each box in the graphic below shows the median return and duration for the seven of these cycles we’ve seen since 1968; but also the return and duration for the most recent phase of the current cycle. The cycles utilize the bull and bear market definitions pioneered by Ned Davis Research (NDR), which are more nuanced than the simple +20%/-20% traditional definition.
Schwab Market Perspective: Sigh of Relief
Beaten down areas of the market have staged a nice turnaround. Stocks have moved well off the lows and the S&P 500 is now within shouting distance of the flatline for the year. Areas of the market that were some of the hardest hit—such as materials, energy and financials—have posted some of the best gains over the past month.
Seven: Happy Anniversary Bull Market (?)
by Liz Ann Sonders of Charles Schwab,
Last week we celebrated the seventh anniversary of the U.S. bull market, which commenced on March 9, 2009 and has since generated a total return for the S&P 500 of 247%. The traditional gift for the seventh anniversary is copper, which is fitting since the strong rally many “risk-on” assets have staged since U.S. stocks bottomed on February 11, has been accompanied (driven?) by a surge in commodities, including copper and more importantly oil.
Schwab Market Perspective: Neutral Does Not Mean Boring
There are two ways to get to a neutral color: 1) just pick the boring beige that we’re all familiar with, or 2) mix a bunch of wild colors together and end up with an altogether bland sort of color—vastly different inputs but relatively the same result. Recently, stocks have resembled the latter scenario as stock indexes have moved out of correction territory but have remained quite volatile, with triple-digit Dow moves more common than not.
Good Times Bad Times…and Lots in Between
by Liz Ann Sonders of Charles Schwab,
In the world of investing, apocalyptic scenarios abound. You can fit the extreme optimists in a thimble. We sit somewhere in the middle—having had a neutral rating on U.S. stocks since the beginning of 2015. It’s certainly more adrenaline-inducing to have a high-conviction extreme view, but investing is typically more gray than it is black or white. But admit it—you are often more intrigued by the apocalyptic scenario.
Schwab Market Perspective: Confidence is Key
There are many words that could be used to describe the first six weeks of 2016 with regard to stock performance but given that this is a family publication we’ll stick with frustrating. There have been rebounds, including the latest fierce recovery which has taken US stocks out of correction mode; but a lot of confidence has been shattered. These are the times that can make or break an investing plan. Our long-held mantra is that panic is not an investing strategy and that investing should always be a disciplined process over time; never about decisions at moments in time.
Q&A with Liz Ann Sonders: What’s Behind the Recent Market Volatility?
by Liz Ann Sonders of Charles Schwab,
Global markets have been unusually volatile so far this year, including during the past few trading sessions. In light of the market's downward moves, we sat down with Liz Ann Sonders, Chief Investment Strategist for Charles Schwab & Co., to get her take on the recent market action and economic news.
Watching and Waiting
Don’t just do something, sit there! Not panicking can be tough to do in times of increased volatility, but often the best advice to avoid emotional decisions. We continue to expect severe bouts of volatility at least until the trajectory of the U.S. and global economy is more definitive. In the meantime, the Fed is likely to become more dovish in the near-term, which could stabilize the volatility. Recent results for global PMI readings are relatively encouraging and certainly argue against the apocalyptic forecasts so prevalent today.
Life in the Fast Lane: Look Through the Windshield, Not the Rear View Mirror
by Liz Ann Sonders of Charles Schwab,
The recession drumbeat has picked up tempo, which is to be expected given the signal coming from several market-based indicators, the contraction in manufacturing, and the anemic reading on (the lagging) fourth quarter U.S. gross domestic product (GDP). Notwithstanding the sharp equity market rally late last week, the market has certainly been ringing the alarm bell, with the worst January start to a year since 2009. But remember, there is an apt and famous phrase on Wall Street: “The stock market has called nine of the past five recessions.”
Looking for Answers
It can be difficult to stay calm during market declines, but reacting emotionally is rarely beneficial. Investors need to maintain discipline and keep long-term goals in mind. Risks have risen for the U.S. and global economy, but neither a domestic nor global recession appears to be on the imminent horizon. But oil likely needs to stabilize to stem some of the recent volatility. Stay calm, and don’t overreact to the short-term gyrations in the market.
Changes: Turn and Face the Strange (Market)
by Liz Ann Sonders of Charles Schwab,
The S&P 500 is down 8% since the year began, the worst two-week start to a year ever. There have only been five other years since 1928 when the index fell by more than 5% in the first 10 trading days of the year. As shown in the B.I.G. table below, looking back at the five worst yearly starts, the returns for the rest of January were mixed, while the rest of year returns were more positive (dramatically so in three cases). The only dud was during the financial crisis in 2008.
Questions for the New Year
We continue to believe that U.S. and global stocks will continue to experience bouts of volatility and pullbacks; but a major bear market is likely to be avoided. Key determinants of the path stocks will take include central bank policy, inflation, currency volatility and earnings/valuation. We continue to reinforce the benefits of broad and global asset class diversification during a more difficult market environment.
Back to Zero: Market’s Flat Return Masks Underlying Pressures
by Liz Ann Sonders of Charles Schwab,
It was indeed a “running to stand still” market this year (a U2 song title I used for one of my reports last spring to describe the market). The S&P finished 2015 nearly flat at -0.7%, but only Rip Van Winkle would have thought it was a calm year. The return, or lack thereof, belied the angst investors were feeling for much of the year. There are precedents for flat years, and in this short update, we’ll look at what it meant in the past for the future.
Said the Fed to the Markets, “Take a Hike”
by Liz Ann Sonders of Charles Schwab,
The initiation of rate hikes removes the uncertainty around the start date obviously; but does not remove the uncertainty around the path of rate hikes from here. We believe this will remain a focus by investors in 2016; and is likely to contribute to some of the volatility we believe will persist across the equity and fixed income markets.
Devil Inside, Redux: Another Look at the Variety of U.S. Market Valuation Metrics
by Liz Ann Sonders of Charles Schwab,
I’ve written many times about equity market valuation being both in the eye of the beholder and a function of the chosen indicator. Even the most common valuation metric—the price/earnings (P/E) ratio—has many derivations. The table in this report is a summary of most of the common (and somewhat less common) valuation metrics, and a subjective assessment of whether they are sending an inexpensive or expensive message about the stock market presently.
Realism Returns
Stocks have pulled back after their rip higher in October, which we believe is healthy and in keeping with our expectation of continued volatility. The US economic picture is mixed, but the recent robust labor report boosted the odds of a December Fed rate hike. Finally, while difficult to think about financial matters in the face of such horrific events as the Paris attack, the resilience of both people and economies around the world should give us all hope for the future.
Wave of Sorrow: Will the Horrors in Paris Keep the Fed on Hold?
by Liz Ann Sonders of Charles Schwab,
It’s always with a heavy heart that we, as analysts with responsibilities to our investors, attempt to divine the implications for markets of past and present terrorist attacks. The horrific events of Friday in Paris are yet again a reminder of the fragility of what we so often take for granted. Our prayers go out to all those impacted by such a senseless set of acts.
The Markets’ Teddy Bear
The sharp market gains seen over the last month are unlikely to persist at the same pace, and investors should be prepared for more volatility. Uncertainty about interest rates will persist, but the US economy continues to chug along at a decent, although not robust, pace. Similarly, global growth seems to be perking up, and helping to stymie predictions of an impending global recession. There are still pressures on global growth, but we believe the upside surprise potential in Europe should benefit stocks in that region.
December: Did the Fed Open the Door Wider for a Hike?
by Liz Ann Sonders of Charles Schwab,
The Federal Open Market Committee (FOMC) issued a more hawkish statement last week alongside its decision to keep interest rates unchanged. The forward guidance section of the statement was worded (emphasis mine) to focus on "whether it will be appropriate to raise the target range at the next meeting." And although it waxed more dovish on employment, it dropped the line from the prior meeting’s statement about global developments, which the FOMC had specifically cited as a reason to hold rates steady in September.
Schwab Market Perspective: Bulls, Bears…and Hippos?
When trying to describe our view of the market, we realized that bullish and bearish were quite limiting and could cause confusion. Bullish, for example, could mean anything from skyrocketing markets to very modest gains—one word, very different environments. So, we are introducing a new animal descriptor that should more accurately describe our view of the stock market—the hippo. While not initially obvious, we think this is the perfect descriptor, and who doesn’t love hippos?
Chart Toppers: Diversification, China and the Fed’s Dual Mandate
by Liz Ann Sonders of Charles Schwab,
From time to time, instead of diving into a singular topic in these reports, I am going to do a“Chart Toppers” review, where I share some of the more interesting and relevant charts I’ve put together or seen on a variety of topics.
Fourth Quarter Comeback?
A disappointing year to this point for the US stock market has a chance to end on a better note, with good seasonality and a still-growing economy as supports. Consumers are in good shape, the Fed remains accommodative, and the much-larger service side of the US economy is still healthy. But Fed uncertainty, Congressional budget battles, and Chinese growth concerns will remain as headwinds and will likely contribute to continued bouts of volatility. Across the pond, the European fight against deflation appears to be working, although more QE may be needed, to the potential benefit of Europe/
Under Pressure: Earnings Recession Warning; Economic Recession Watch
by Liz Ann Sonders of Charles Schwab,
Many of the questions I’ve been getting recently at client events are around earnings, and whether the expected move into negative territory for earnings growth is a signal of a pending economic recession.
Are the Bulls Regaining Their Footing?
Uncertainty surrounding the Federal Reserve continues after its punt of rate hikes at its most recent meeting. But as the market gets more clarity on monetary policy and given a still-growing US economy, the bull market should slowly reestablish itself, albeit with bouts of volatility. Further support should come from global growth in areas that are net beneficiaries of the plunge in commodity prices.
Logical Song: What to Make of Record Buybacks
by Liz Ann Sonders of Charles Schwab,
A common question I’ve been getting at client events lately is about stock buybacks and the effect they’re having on earnings-per-share (EPS); as well as what they say about the economy overall and investor/business psychology.
When Doves Cry … Yeah! Fed Punts and Keeps Rates Unchanged
by Liz Ann Sonders of Charles Schwab,
The Fed opted to stall on raising rates for the first time since 2006; primarily citing global turmoil and still-restrained inflation for its decision. In addition, the accompanying Federal Open Market Committee (FOMC) statement was not as hawkish as many expected (meaning, those who had been expecting no hike, were also expecting a more hawkish statement).
Schwab Market Perspective: Now What?
“Everyone has a plan until they get punched in the mouth.”—Mike Tyson.
We don’t often quote Mike Tyson, but his words resonate lately. Investors are wondering what to do—buy the dips, sell the rallies, or sit tight? First, investment decisions should never be made on emotion, which tends to dominate at times like this. It can be difficult to stomach moves such as we’ve seen recently. But investors who have an investing plan in place should indeed just sit there, let things calm down, and continue with the plan already put in place.
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.
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.
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.
Results 401–450
of 660 found.
