Test of Schwab post
The book is closing on third quarter earnings, which were stellar; but is it time to worry about a bar set too high in 2018?
Earnings season, both in the United States and globally, has been solid, while economic growth has accelerated across much of the globe—all supportive of an ongoing global bull market. Elevated optimism and complacency could lead to pullbacks, but we believe it would be in the context of an ongoing bull market.
My last report was on the acceleration in business capital spending (capex) that is likely to be an economic highlight in 2018. Part-and-parcel of capex is productivity—officially known as non-farm labor productivity—which has averaged less than 1% annualized growth during the current expansion.
Surprising no one, the Fed kept rates unchanged; but strongly hinted that the market’s correct about the near-certainty of a December rate hike.
Global and domestic economic growth, along with a solid earnings picture and a potential tax reform tailwind, suggest investors should remain at their target equity allocations. Pullbacks are possible but a recession doesn’t appear to be in the cards in the near term, which historically has meant the risk of a pullback turning into a bear market is low.
Since the initial surge out of the global financial crisis, capital spending has been range-bound; but there’s ample reason to expect a new upcycle.
It’s been 10 years since Charles Schwab Investment Management, Inc. first launched the Schwab Fundamental Index Funds. Fundamental Index strategies were among the first to hit the market within the strategic beta universe.
U.S. stock indices have continued to push to record highs, with little apparently able to throw them off course. The grind higher has pushed through natural disasters, the Las Vegas tragedy, domestic political failures, international political tensions, and missile tests and threats from North Korea—an ample “wall of worry” for stocks to climb.
With wage growth picking up and the labor market even tighter, it’s time to put even traditional measures of inflation back on the radar screen.