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1/2 Full: Not Throwing in Towel on Recession Probability
by Liz Ann Sonders of Charles Schwab,
Double-dip recession chatter is highly elevated, but I think we'll scrape by without one. Leading indexes are giving conflicting signals. Recession or not, growth will be weighed down by debt and lack of confidence. Let me state right up front that even though I'm not in the recession camp, risks that there will be one have risen markedly. A good deal of that risk relates to the breakdown in confidence triggered by the debt ceiling-related political antics, the subsequent downgrade of US debt by Standard & Poor's, the ongoing debt crisis in the eurozone and a highly volatile stock market.
Confidence Counts
Most of the normally historically-telling leading indicators continue to point to the US avoiding a recession. However, risks are clearly heightened as continued erosion of confidence could push perception into reality. The Fed continues to be divided on whether to attempt further monetary stimulus. We question if any efforts will have the desired impact. The Obama Administration and Congress continue to scramble to be seen as doing something to help, but also have limited policy options. European policymakers seem oblivious to the erosion of confidence.
Volatility Continues: Are the Markets Overreacting?
Selling pressure was heavy today as European banking fears combined with soft economic data. Risks have grown, but not all is in the negative column and markets may be overreacting.
Interest rates are near record lows, indicating to us a growing concern about growth and a search for safety.
Investing can be nerve-wracking in environments such as this, but we believe sticking with a well-devised long-term plan continues to be the best course of action.
Return to Recession.or Recovery?
by Liz Ann Sonders of Charles Schwab,
Soft economic data has caused talk of a return to recession to grow, leading to a return to the risk-off trade and a spike in volatility. We believe these fears and the market reaction are overdone and indicators still point to growth, but risks are high. The chorus calling for a new quantitative easing (QE3) program from the Fed has grown. We believe it's unlikely at this point. The European debt crisis continues to damage investor confidence as policymakers appear to be consistently behind the curve. Meanwhile, the economic slowdown could ultimately help emerging markets.
Panic Is Not a Strategy - Nor Is Greed
by Liz Ann Sonders of Charles Schwab,
Originally published in 2008, it's time for a refresher about the perils of panic.
Asset allocation, diversification and rebalancing are as close to a "free lunch" as you can get as an investor.
ThIn world where time horizons have shrunk precipitously, think longer-term.
Breaking Commentary: Fed Gains Disappear
Stocks fell sharply again today, continuing the extreme volatility seen recently.
Concerns over the state of the financial industry in France drifted into the United States, contributing to the sell-off.
Confidence appears very fragile right now and investors should use this volatility to judge their level of risk tolerance and adjust long-term allocations as appropriate.
Disappearing Act: GDP Loses Steam
by Liz Ann Sonders of Charles Schwab,
Although the debt deal remains top-of-mind, the latest GDP report's weakness didn't ease the angst.
The economy is now operating at "stall speed" and is at a crucial inflection point.
There's not much good news other than corporate profits, which have boomed.
Let's Make a (Debt) Deal and Crush the Market
by Liz Ann Sonders of Charles Schwab,
Today was about fundamentals, both here and in Europe. We got yet another batch of limp economic news today with weak personal income and spending; while we're still hung over from last week's hit to GDP growth for the first half of this year, and all of the recession's era. As a refresher, GDP barely grew at 0.4% in the first quarter and grew a paltry 1.3% in the second quarter. It didn't help that the S&P 500 crossed below its 200-day moving average, which often begets additional selling by the technically-inclined traders.
Shifting Focus
Some economic indicators are starting to perk up while corporate earnings have been strong as we wind down reporting season. Stocks will move higher in the coming months once confidence is restored. Whatever the near-term outcome of the debt debate, the US still has deficit issues to deal with and hard choices must be made to ensure economic stability for years to come. Europe finally arrived at their debt deal, but it likely falls short of what will eventually be needed. Meanwhile, China is key to emerging market performance and continues to deal with inflationary concerns.
Staring at the Ceiling
by Liz Ann Sonders of Charles Schwab,
Everyone's focused on the debt-ceiling negotiations, impacting everything from market action to consumer confidence.
Default remains unlikely, but investors are wondering about portfolio positioning in the event the unthinkable occurs.
Behind the scenes, the news isn't all bad, as some economic readings and most corporate earnings releases have been pleasant surprises.
Earnings Heat Up
Earnings season is heating up and will provide a status update on the "soft patch" and where companies' confidence level lies. Stocks have been more volatile but are they telling us something about potential future direction? Debt ceiling talks continue in Washington, with a deal still likely to come in the final days before the supposed August 2 deadline. The make-up of spending cuts, tax changes, and any entitlement reform may be key to longer-term market reaction. Contagion fears are growing in Europe and solutions are difficult to come by.
Sparks: Are Stocks Telling a Better Story For the Second Half?
by Liz Ann Sonders of Charles Schwab,
Investors continue to focus on the macro ? but the micro is telling a much better story.
There was lots of good micro and macro news last week.
Is the market's rally sending a signal that the second half of the year is looking up?
Expert Roundtable on Interest Rates
by Mark W. Riepe, Liz Ann Sonders, Kathy A. Jones, Rande Spiegelman & Brad Sorensen of Charles Schwab,
US short-term interest rates have hovered near zero percent for a record period of time. The Fed has kept the funds rate extremely low, not only to boost economic growth, but also to ward off the threat of a deflationary spiral. Given the economy's recent soft patch, we don't expect the Fed to raise rates too soon. But, at some point rates will rise, it makes sense for clients to start planning now. With this in mind, Mark Riepe, led a roundtable discussion of investment and debt strategies for both the current low-interest rate environment and a future point when rates begin to tick up.
Schwab Market Perspective: Dealing with Debt
Global governments are dealing with rolling debt crises equaling shaky investor confidence. We are concerned that many of the solutions weigh on growth prospects, but are hopeful about short-term resolutions that restore business confidence and lead to more investment and hiring. The Fed continues to hold steady, keeping short rates near zero and likely reinvesting maturing Treasury securities after QE2 ends. Greece passed the austerity package required to get short-term funding but much more is needed. And while the focus has been on Europe, it may be time to focus on the Asian region.
Heartbreaker: Soft Patch Hits Stock Market
by Liz Ann Sonders of Charles Schwab,
We remain in the soft patch versus double-dip recession camp, believing a lot of the weaker growth has been from temporary factors.
Investor sentiment has become decidedly pessimistic? a contrarian positive for stocks.
Market breadth also shows the market at extremes typically followed by a bounce.
Pause or Panic?
Economic data has deteriorated to the point that talk of a double dip recession has returned. The risk of another recession is low as most indicators remain well in expansion territory. Several factors are contributing to a soft patch, but a rebound is likely in the latter part of 2011. Along with talk of recession risk, chatter about the need for QE3 by the Fed has increased. The bar is quite high for QE3, but it is very likely the Fed will not let its balance sheet shrink in the near-term. Global growth is decelerating as well, with China tightening and Japan dealing with reconstruction.
Some Days (Months) Are Better Than Others
by Liz Ann Sonders of Charles Schwab,
May was a rough month for investors, though it ended on a sunnier note. A growth slowdown is evident, but the debate rages about whether its factors are temporary. We think May's risk-off mode is easing, but choppy action remains likely until longer-term worries subside. After an uphill ride in April, when the Dow was up 4%, May wasn't kind to investors, although the last two trading days brought some sunshine. It was the first time in nearly three years that the S&P 500 index had no up weeks in a month.
Expert Roundtable on Risk
by Mark W. Riepe, Liz Ann Sonders, Randy Frederick, Rob Williams, & Brad Sorensen of Charles Schwab,
The word "risk" has a negative connotation-something to steer clear of whenever possible. However, in the investing world, risk and performance are intertwined. Market sentiment can shift quickly depending on economic or political news, geopolitical events and even natural disasters and these shifts can sometimes send investors fleeing for safety or taking on more risk as they seek higher returns. Mark Riepe, led a roundtable discussing the concept of risk in investing, strategies for reducing portfolio risk, and investment suggestions tailored to both risk-seeking and risk-averse investors.
Schwab Market Perspective: Shifting Sentiment
Economic headwinds are causing growth expectations to be reevaluated, resulting in choppier action in a majority of asset classes. The Fed is moving steadily closer to ending its purchases of Treasuries but we dont believe its a major event. Normalization of monetary policy still seems slow in coming, although we believe QE2 ending on schedule is nearly certain. Europe's debt crisis continues to plague the eurozone. Solutions appear to be limited and agreement is still anything but assured. Meanwhile, China's slowdown is also weighing on investors.
Breakdown: Commodities Tumble ? For Good?
by Liz Ann Sonders of Charles Schwab,
'When in doubt, get out' has become the mantra for commodities traders the past couple of weeks. Sentiment had become too one-sided (and may need to ease even further). Is risk-on, risk-off trading finally coming to an end, and can fundamental analysis prevail? We've written a lot about the 'risk-on, risk-off' trading environment prevalent over the past several years. Risk on is basically when investors have been feeling better about the global economy and about the markets, so they buy and embrace more risky assets. Then, when fears rise investors essentially avoid all risk?risk off.
Market Turbulence Increasing
We are entering a traditionally tough period for the market and economic data has been raising questions about the sustainability of the recovery. While still optimistic on the longer-term outlook, there could be more choppiness in the near term as markets adjust to a changing environment. The Fed continues to buck the global trend by maintaining loose monetary policy, which contributed to a weaker dollar. But lately the dollar has gotten a lift as QE2 comes to an end, contributing to a rout in commodity prices.
Schwab Market Perspective: Making Sense of a Mixed Bag
Earnings season is winding down and is largely positive and CEO confidence is high. This points toward a continued improving labor outlook but could mean more grinding in the stock market. Housing remains moribund but the market seems to be largely dismissive. A ratings warning on US debt rattled the stock market but bond markets were relatively unmoved. Issues need to be addressed, but they are more likely to affect money flowing into the economy and highly unlikely to result in failure to pay obligations. Meanwhile, the Fed is striving to communicate more effectively-but about what?
The Fed Meets the Press
by Liz Ann Sonders of Charles Schwab,
The Fed's meeting ended with no surprises on rates or outlook.
But the first-ever news conference added some clarity, context and transparency to the Fed's thinking.
The Fed has just begun its long process toward monetary policy normalization?and that's a good thing.
Inside Information
Earnings season gives an 'insider' look at economic growth. Businesses see and react to changes in the economy before the broader macro data show a clear trend. The Fed has floated some trial balloons about reining in its extremely accommodative policies, the time for which is overdue. Budget issues remain a problem at all levels of government, but likely wont derail the recovery at this time. Despite ongoing debt problems in peripheral European nations, the ECB hiked interest rates. Europe still faces significant issues that make it more likely to underperform other areas of the world.
When Doves Cry: Debates Rage About QE2's Finale
by Liz Ann Sonders of Charles Schwab,
Will the Federal Reserve's quantitative easing (QE2) pull into the dry dock in June as intended? If so, what are the implications for stock and bond investors? Might the Fed begin tightening policy before many think?
Expert Roundtable on Inflation: Should You Be Worried?
Inflation is a rise in the general level of prices of goods and services; your money buys less. With oil and other commodity prices rising, the Federal Reserve's current easy monetary policy and the economy picking up, many investors are worried about inflation. Mark Riepe, head of Financial Research and president of Charles Schwab Investment Advisory, led a roundtable discussing why Wall and Main Street may have different perspectives on inflation. The roundtable also covers our inflation outlook, ways to protect your investments and inflation-savvy investments you might want to consider.
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.
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.
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.
Results 601–650
of 661 found.
