Charles Schwab Investment Management
Biweekly insights on the latest global investment news regarding equities and fixed income from our leadership team.
Equities: The eight-year bull market
Omar Aguilar, Ph.D.
Chief Investment Officer,
Equities and Multi-Asset Strategies
A distinguished milestone for U.S. stocks
The current bull market for U.S. stocks recently celebrated its eighth birthday, establishing itself as one of the longest in modern history. From March 2009 through March 2017, the S&P 500 Index returned roughly 250%, outperforming large-cap stocks in developed international markets by approximately 150%. Small-cap U.S. stocks performed even better still, outperforming large-caps by about 50%. The backdrop for these returns included a U.S. economy that transitioned from exceptionally accommodative Federal Reserve policies in the wake of the Great Recession to an expansionary phase in which the Fed is raising interest rates.
"Soft data" and "hard data" disconnect
U.S. equities finished the first quarter in the black. However, the recent lack of progress in Washington by the new administration has increased uncertainty around the potential timing and size of fiscal stimulus. “Soft data” like consumer and investor confidence are at their highest levels in years, and the economy appears stable, but “hard data” like quarterly GDP numbers reveal an average growth outlook, well below what confidence levels imply.
Political uncertainty in Europe cuts two ways
Given confirmation that the U.K. will leave the European Union and political uncertainty in Europe, we expect greater volatility in currency and international equity markets. However, a budding recovery and attractive valuations may yield select opportunities.
Fixed Income: Here’s why yields aren’t moving
Brett Wander, CFA
Chief Investment Officer,
Treasury yields have been remarkably stable despite the failure of Congress to pass healthcare reform, the recent stock market selloff, and the Fed’s March rate hike.
No healthcare reform—bond yields stable
When healthcare reform recently failed to pass in the House, general expectations called for rates to fall. They didn’t. Instead, Treasury rates remained remarkably stable. Apparently, neither the potential passage nor the failure of the bill was likely to move the bond market. Inflation expectations remained low either way, so we hardly find this outcome surprising.
Equities sell off—bond yields stable
U.S. stocks recently finished an eight-day losing streak, their longest negative run in years. What did the bond market do during this time? Not much. Stocks have been trading on the basis of Trump’s chances for passing his agenda. Yet as long as inflation expectations are low, bond yields shouldn’t move much.
March rate hike—bond yields stable
The Fed raised rates in March, yet longer-term Treasury yields have actually fallen slightly since then. The Fed painted a rather dovish picture regarding future rate hikes, and seemed a bit less concerned about inflation than expected. Translation: interest rates and inflation remain low, so bond yields remain low as well!