Charles Schwab Investment Management

Biweekly insights on the latest global investment news regarding equities and fixed income from our leadership team.

August 7, 2017


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  • Equities: Is the stock market party fading?

    Omar Aguilar, Ph.D.

    Chief Investment Officer,
    Equities and Multi-Asset Strategies

    Market volatility remains at historic lows

    Credit spreads and volatility continue their historically low levels, while equity markets soar to new highs — supported by a stable U.S. economy and accommodating Federal Reserve (Fed). Additionally, the economic recovery in Europe and emerging markets has depreciated the U.S. dollar relative to major currencies, which in turn has provided additional stimulus to the U.S. markets.

    Political gridlock, low inflation could ruin party

    Equity markets have priced in the start of Fed balance sheet unwinding in September and an additional rate hike in December. However, Fed plans could change quickly should we see continued lack of inflation, anemic wage growth or a sudden change in market volatility. In the near-term, we’re closely monitoring ongoing political risks and uncertainty surrounding the timing of corporate tax reform and infrastructure spending policies, which could send the market into a short term technical correction.

    Solid corporate earnings, but capex concerning

    Second quarter earnings thus far have been robust with a high percentage of companies beating estimates and guidance continuing to move higher. Larger cap companies with international revenues have benefited from a weaker U.S. dollar. That said, many of these companies have reduced their capital expenditures (capex) as they await greater clarity on fiscal policies.

  • Fixed Income: Same story, different day

    Brett Wander, CFA

    Chief Investment Officer,
    Fixed Income

    Markets continue to lay low

    Market volatility across both stocks and bonds is about as low as it has been — ever! And there’s no reason to expect that this will change anytime soon. Looking back over the past week, month, and even since the beginning of the year, it’s the same old story: Markets are not responding in a meaningful way to the economic news, Janet Yellen or President Trump.

    Slow and steady goes the economic recovery

    Economic data continues to tell the same story — a recovery that’s consistent but somewhat slow, and not showing any signs of inflation. In fact, the July employment data released last week was strong, but the market hardly moved. Why? Because it’s the same story we’ve seen for several months.

    December rate hike? Markets don’t care

    The Fed has raised rates twice this year, and another hike is possible in December. But the market doesn’t really seem to care. Long-term yields are driven by inflation expectations, and these continue to remain low, whether the Fed raises rates, or not.

    Tuning out the Trump noise

    While the volatility within the Trump administration continues to make big news, its impact on financial markets has been remarkably benign. The daily ups and downs on the political front just don’t tell us much about long-run corporate profits, inflation and jobs. Several months ago the market responded to just about every tweet. Today, the market just yawns.