MARK RIEPE: All right. Welcome to Schwab Market Talk, and thanks for your time today. It’s June 9^th, 2026. The information provided here is for general information purposes only, and all expressions of opinion are subject to change without notice in reaction to shifting market conditions. I’m Mark Riepe, and I head up the Schwab Center for Financial Research, and I’ll be your moderator today. We do these events monthly, and this is our Midyear Market Outlook. So instead of doing the whole show in a kind of a Q&A format like we normally do, we’re going to have each of our presenters speak for about 12 minutes, and then we’ll open it up to live Q&A. If you want to ask a question, you can do that at any time. Just type the question into the Q&A box on the screen, and then click Submit, and then we’ll answer as many of those as we can after the presentations have finished. We’ve also lengthened the show by 15 minutes in order to answer as many questions as we can. For continuing education credits, live attendance qualifies for one hour of CFP and/or CIMA continuing education credit if you watch for a minimum of 50 minutes. That means you aren’t eligible for any CE credit if you only watch the replay. To get CFP credit, please enter your CFP ID Number in the window that should be popping up on your screen right now, and then Schwab will submit your credit request to the CFP Board on your behalf. In case you don’t see it, don’t worry. You should see it again towards the end of the webcast. For CIMA credit, you’ll have to submit that on your own. Approximately 15 minutes after the show start, the directions for how to submit it can be found in the CIMA widget that will be appearing at the bottom of your screen. We also have a widget called Certificate of Attendance, and it’s found at the bottom of your screen in the widget dock. That certificate will be available after 50 minutes of attendance, and that also can be used as proof of your attendance. Last thing before our speakers join, I want to call your attention to a couple of resources on the webcast console. In the top right, you’ll find a link to a client-approved chart on dividend-paying stocks, and in the bottom right, you’ll find links to the written outlooks written by our speakers. And our speakers today are Liz Ann Sonders, our Chief Investment Strategist; Collin Martin, our Head of Fixed Income Research and Strategy; Chris Ferrarone, our Head of Equity Research and Strategy; and Mike Townsend, our Managing Director of Legislative and Regulatory Affairs. That’s also the order in which they will be presenting. So Liz Ann, why don’t you take it away?

LIZ ANN SONDERS: All right, great. Thanks, Mark. And thanks, everybody, for tuning in. Much appreciated. So got a number of slides here. Call it a highlight reel of the written version of the report. It’s not everything. So I would urge you to take a look at the longer form report. So we’ll start at the macro and talk about the economy, and then dive in a little bit in the stock market.

So this is a look at GDP, real GDP, on a quarterly basis, but instead of just looking at the height of each bar, which represents the growth rate for that quarter, we actually have the breakdown in terms of what the drivers are. And you can see most categories were in the positive part of the column in terms of contribution to GDP. And for what it’s worth, Atlanta Fed’s GDPNow is actually tracking at about 3%. So if that came to fruition, it would be an improvement relative to what we saw in the first quarter. Now, GDPNow is what’s called a nowcast. It is not a forecast. It just takes data as it comes in, and then establishes a baseline for what GDP is tracking for that quarter, and of course, we still have a few weeks left in the end of the quarter. But the economy appears to be in fairly decent shape, and I think that’s one of the reasons why there seems to be a bit more focus right now on the inflation picture, which I’ll talk about in a minute.

So we’ve got a couple of charts here. This looks at the PCE Price Index, which as a reminder, PCE is the Fed’s preferred measure. And on the left-hand side, you see gasoline and motor fuels as a driver of inflation. No surprise here whatsoever that we’re seeing that upward pressure on inflation coming from energy prices. But you’ve also got on the right-hand side software and accessories. That gets broken out as a share of both CPI and PCE. And so the inflation story is actually more than just an energy, Strait of Hormuz, war in Iran story. There’s AI components to the inflation story, and although I don’t have a chart of it, you’ve also got money supply that has been increasing. That’s kind of that classic driver of inflation. So this is more of a secular inflation backdrop, not just something driven from geopolitics.

Another thing that we did is take a look at the Misery Index, and sort of harken everybody back to the 1970s. And that index was created at a time when you had upward pressure on the unemployment rate and upward pressure on inflation. So the darker line there is that traditional Misery Index. So it uses year-over-year CPI plus the unemployment rate. But you can actually do what we’re calling an expectations Misery Index because there are metrics, obviously, for inflation expectations, and then we add to it unemployment expectations that come as part of consumer confidence. And you can see what began a huge spike, a little bit more range-bound recently, but clearly expectations have been elevated as it relates to the impact of the war and the impact on both potentially employment, as well as inflation. Now, my guess is we’re not going to see a full catch up by the traditional Misery Index. I think what ultimately happens, and it could be relatively soon, and by soon, I mean in the context of calendar year 2026, we might actually start to see a bit of convergence in these two.

So moving on to still on sort of a macro backdrop, but now we’ll tie it into the market. So this is what’s often called the Earnings Hook Chart. So you’ve got all four quarters of 2026, of which only the first quarter is essentially in the record books. We’re largely done with reporting season, you have a few stragglers left, and you can see the unbelievable surge from just prior to reporting season, which began in the second week in April, with earnings estimates jumping to close to 30%, and that’s what we’ll lock in for the first quarter. As a result, we have seen estimates for the remaining three quarters, as well as the calendar year 2026, move up quite significantly. So there’s not a better picture for what has been the most important fundamental underpinning for this market has been this surge in earnings.

Now, I don’t have a chart, but valuations are a factor to be considered here too. I already saw some questions that popped in our Q&A box about valuations. There’s sort of a good news caveat to what are still fairly stretched valuations, and that is price appreciation has actually undershot the earnings growth appreciation. So the denominator has actually been doing a lot of the heavy lifting, allowing for valuations to not become more extreme, and if anything actually come down a little bit.

We know there has been a massive AI story. It’s embedded in the economy. I already touched on the fact that it’s embedded in inflation, not just current inflation but inflation expectations, and we can also look at it at a slightly more micro level. So we’re looking here at the hyperscalers CapEx as a share of overall S&P 500 CapEx, and then the blue line is hyperscaler’s net income as a percent of total net income for the S&P 500. It probably isn’t a surprise to a sophisticated audience like this, but that darker line has gone maybe not pure vertical but somewhat parabolic without it being matched at the same pace by the net income share of the hyperscalers. So this may be kind of a behind the scenes reason why there’s heightened sensitivity now to the CapEx story. At what point does it go too far? Could we get more disappointing announcements like we got at the end of last week from Broadcom, which was approximate cause for what was a particularly weak day last week. So I think that we’ll continue to be, pun intended, hyper-attention to this whole AI, the spend, the circularity of the spend, and the longevity of that, particularly as it relates to valuations.

Now we’re looking at chip demand. So again, bringing the AI story in here. So you’ve got proxy and chip demand here would be the Philly Stock Exchange Semiconductor Index. That’s the bright blue line, the year-over-year change on the right. And then tracked against the ISM Manufacturing Index noted on the left. And you have seen manufacturing improve. In fact, it’s either four or five months in a row now we’ve been above that 50 demarcation point that separates contraction from expansion. So it looks like manufacturing has pulled itself out of what was a fairly lengthy sectoral recession. Now we’ve got this parabolic move higher in the Semiconductor Index, suggesting we could continue to see an upward move in manufacturing, probably not to the same degree that what we’re seeing in the blue line there, but I think the outlook is pretty good for manufacturing. There’s a heavy AI bias to what is driving manufacturing, but it’s a positive nonetheless because manufacturing is considered more of a leading indicator, and could represent an elongation of the cycle even in an environment where it looks like services has been pulling back a bit.

Courtesy of some of the weakness we saw at the end of last week and relative carnage, albeit for a day, in technology stocks and sort of that AI trade, we have seen a little bit of an improvement in breadth. So this looks at… there’s lots of ways to measure breadth. I post a lot of breadth charts on my X feed every day. But this looks at the percentage of members within the S&P 500 that are outperforming the index itself over the past one-month period of time. And you can see we have bounced up off of a very, very historically extreme low where we were down in about the 12- or 13% of stocks on a trailing one-month basis was outperforming the S&P. And there’s lots of other ways to look at it. One of the visuals that I put on my X feed every morning, it’s not shown in here, just looks at in light of the S&P trading near an all-time high, it’s low single-digit percent of the S&P that’s trading at a 52-week high. So there’s some improvement here, but arguably more to go to declare this move that we’ve seen in the market a healthier one from a breadth perspective.

Another not imminent risk factor, but just something to be mindful, and it ties the macro back in here. So we’re looking at 47% of households exposure to stocks, and that’s about triple where we were during the low in the global financial crisis. And this has implications in a somewhat circular chicken and egg way. You could think back to the 2001 period where we had an economic recession in 2001. Personally, I don’t think we would have had a recession were it not for the bear market in stocks that had started back in March of 2000. And you could see at that time we were at a high in stocks as a percentage of household assets. So you got the bear market in the stock market, and that I think pulled the economy down with it. It could work in the opposite direction too, but when we think about risk factors and volatility drivers, this is one of them.

Speaking of risk, this is the Goldman Sachs Risk Appetite Indicator. It is a Z-score. You can see this is quite elevated. Those vertical bars represent prior periods where we saw a similarly high level. And this is reflective of a sentiment environment that has gotten a bit frothy. Now, another thing that we touch on in the report is a bit about positioning, and the cohorts that are driving the market on a day-to-day basis, on a week to week basis. So you’ve got maybe the more traditional short-term institutional community of systematic funds and long-short hedge funds, commodity trading advisors, and then you have that other cohort of retail traders. And risk appetites tend to be a little bit more volatile right now, but they’re also all playing off of each other and their positioning. Interestingly, the cohort that has been less involved in this move recently to new highs was actually the retail trader. They’ve been a bit more subdued. A lot of the action and the risk-taking both on the long side and the short side has been driven by some of these more institutionally-oriented members in terms of day-to-day activity.

I think this is my final chart, and I think this is probably one of the more important ones. I’ve often showed this analysis over a much longer time period when we in the past have written about and spoken about likely being in a different secular era than the period that was defined as the great moderation, which spanned from the mid- to late-1990s up until the spike in inflation in 2022 courtesy of the pandemic. This is a shorter-term time horizon because I wanted to look just at a rolling 30-day correlation, but it’s the correlation between bond yields and stock prices. For much of the great moderation period, bond yields and stock prices were positively correlated. And that was because yields were keying more off the growth side of the equation, less off the inflation side of the equation because it was generally a disinflationary kind of backdrop. Now we’re clearly moving more into negative correlation territory. And again, I don’t have a long history here, but some of you that are listening here may remember a chart, a version of this that goes all the way back to the early 1960s, and shows that the 30-year period from the […audio dropout…] most of the time was spent in negative correlation territory because inflation… or interest rates, bond yields, were keying more off inflation than on the growth side of the equation. And I think this will continue to be a tell as to whether, indeed, we are in a new secular era.

But in the meantime, the combination of bond yields and oil prices in terms of the inverse correlation, I think that’s going to define market behavior, and I think any pickup in volatility in fixed income on the bond yield side of things, I think would pretty quickly lead into more volatility on the equity side of things.

So I think that’s a good transition to Collin.

COLLIN MARTIN: All right. Thank you, Liz Ann. Good transition to talk about the potential risk of higher yields. That’s generally our outlook. And then what that might mean for the equity market. We’ll talk about a few things here. I’ll start with my Federal Reserve outlook, then our outlook on kind of the general direction of treasury yields, our duration positioning, and then where we see value in the various parts of the bond market, both on the taxable side and the tax-exempt side.

I’ll start with our Federal Reserve outlook where we expect the Fed to be on an extended pause. There’s been a lot of headlines lately about the risk of rate hikes, and how much that’s shifted. And yes, even though the implied probabilities according to the Fed Funds Futures market have shifted from cuts to hikes, we’re not necessarily in the next move will be a hike camp just yet. We do see risks to both sides of the equation, although we acknowledge that the risk of a hike has clearly risen lately. But we’re stopping short of expecting a rate hike soon, mainly because expectations have shifted so much lately.

I think this chart kind of highlights how quickly things have moved, where this is just a chart, the data we get from the Fed Funds Futures market that looks at the number of moves expected by a certain point in time, a certain FOMC meeting. For this chart, we’re showing the June 2027 meeting. You can see by the end of February before the attacks on Iran started, the Fed Funds Futures market was pricing in three cuts by then. Our base case was not necessarily for as many cuts. We thought the Fed would maybe cut one or two times this year, and probably hold pat. Markets were a little bit more aggressive. And then that shifted as inflation expectations shifted as well. But even through March and April, we saw a lot of volatility also.

So when we look at all the movement here, that’s what gives us a little pause in terms of significantly changing our view and pointing to a hike sometime soon. The way we’re framing it right now is that in a vacuum, much of the data we’re looking at, whether it’s high inflation and rising inflation and the relative strength of the labor market, that in a vacuum does support the case for rate hikes at some point, but we acknowledge that there’s a lot of uncertainty around that outlook. If you look at inflation right now, we’ve seen oil prices come down a little bit lately, and if they just kind of hold steady, maybe that hit doesn’t continue on a month-to-month basis. And clearly we’ve seen improvements in the labor market, but the question is will that be sustainable?

So a lot of it comes down to what the outlook for the labor market is, but especially if there is an escalation or deescalation in the Middle East. So given that very uncertain outlook, we expect the Fed to basically hold pat for the next several meetings. We think there’s risks to both a hike or a cut at some point down the road, but we do acknowledge that the risk of a rate hike has increased. And we talk about the idea that Kevin Warsh is now the new Fed Chair, and he’ll be Chair at next week’s meeting, it will be his first meeting as Chair, it will be very interesting to see what his comments look like, what his press conference looks like, knowing that he likely came in with some sort of dovish bias, although it’s very difficult to see how he might maintain that and try to influence that, whether publicly to participants like us or privately with committee members, how he can relay some sort of dovish message in an environment where inflation is just really high. So it will be really interesting to see how that looks next week. Sut right now we expect the Fed to hold steady for the next several meetings, and we’ll see how that plays out. We know that the outlook is very uncertain.

In terms of the level of other treasury yields and the slope of the yield curve, we do expect long-term yields to remain elevated, kind of remain where they are. They’ve been trading in the 4% to 4-1/2% range for about three months or so now. We think it will probably hold there, but we acknowledge that we see more upside risks than downside risks. We see no shortage of factors that actually could pull yields a little bit higher, whether it’s the inflationary environment right now. If inflation is high and rising, investors might demand higher yields to compensate for that risk. We still have budget concerns. I mean, they’ve been here for years, and the trend has been going on for decades, but as time goes on, that might continue to weigh on long-term treasury yields to potentially attract those new marginal buyers as we have to issue more and more treasuries. We’re also seeing a rising trend in global bond yields, where we expect the Fed to hold steady. Other central banks, whether it’s the Bank of Japan, European Central Bank, Bank of England, they’re expected to hike rates. So that could put some sort of a floor under our long-term treasury yields.

One thing that I’m focusing on, and I have on this chart here that poses an additional risk to higher long-term yields is the term premium. It’s a very wonky concept. It’s a risk premium that we earn to consider longer-term bonds, based on the idea that expectations don’t evolve as expected, and it’s sort of an uncertainty premium. And if we look at this chart going back 40 years or so, you can see that we’ve increased from the lows of 2020, but we’re still well below the long-term average, and we’re still well below previous peaks. And if I look at this chart, especially in the post financial crisis period, I think there were a few things that were keeping it maybe artificially low. And these are things that Liz Ann has been talking about for a little while, and I’m in agreement there, that the era we saw after the financial crisis, we saw low inflation, but more importantly, low and stable inflation. It really wasn’t much of an uncertain outlook. And that environment has clearly changed. Not only is inflation high, I think the outlook’s very uncertain right now. And also the Federal Reserve used its balance sheet pretty aggressively, and with Kevin Warsh coming in as Fed Chair, or now Fed Chair, that seems unlikely anytime soon. So those factors could pull the term premium up a little bit, and we see more upside risk than downside risk.

To see treasury yields move significantly lower, we probably need to see economic growth start to slow or recession risk rise, and that’s not our base case right now because the economy has been relatively resilient. With that sort of outlook, we suggest a below benchmark average duration. Even though yields, long end yields have increased, we don’t think now is the time to aggressively be adding long duration investments. We do see more risks to the upside, as I just mentioned, but more importantly, given this term premium theme, I don’t think investors and your clients will necessarily miss the opportunity to lock in these high long-term yields right now. But when we say below benchmark duration, that doesn’t necessarily mean very, very short-term investments, cash, treasury bills, money market funds, because there’s an opportunity cost there. And the yield curve is positively sloped, and even if you go out two years, three years, five years, you can earn higher yields, anywhere from 50 to 75 basis points, depending on the type of bond and the maturity. So there’s an opportunity cost in being a little too short. That being said, we do suggest a below benchmark average duration.

In terms of opportunities in the various parts of the market, when we look at the taxable markets, we are comfortable taking a little risk right now. We actually see value, and we are more favorable on investment-grade corporate bonds, high-yield corporate bonds, and preferred securities. We acknowledge that spreads for most non-treasury investments are very, very low. They’re still near their all-time lows, but the economy is doing well. The economy is resilient. Corporate earnings have been strong. We think businesses are well positioned, especially highly-rated businesses to still navigate what is an uncertain environment.

I don’t have a chart here to highlight what we see as attractive in investment-grade corporate bonds, but average yields are still north of 5% right now if we look at the Bloomberg US Corporate Bond Index. We think that’s a good mix of moderate credit risk and moderate interest rate risk, given its duration near six or seven.

When we look at the high-yield bond market, again, yes, spreads are very low, but I love this chart to highlight how the market has evolved over the years. And this looks at a breakdown of the various sub-indexes of the high-yield index. So we have double-B, single-B, and then triple-C and below. And you can see that double-Bs make up 56% of the index right now, well above levels we’ve seen over the past few decades. So within the high-yield universe, the credit quality has been improving. When we look at the key risk to high-yield bonds, generally that’s the risk of default, that happens with the lowest-rated issuers, and we can see triple-C and below the share of the index has been declining. So we are still comfortable taking a little bit of risk there as well.

And then finally, preferred securities, this might sound a little counterintuitive because they are long duration investments. Most preferreds have long maturities or no maturities at all, but they’re sensitive not just to long-term interest rates, they’re also sensitive to risky assets and US equities, the stock market. So if we look at this chart, we look at the current 10-year correlation of the Preferred Index with the High-Yield Index, the S&P 500, Corporate Bond Index, and the 20-Plus-Year Treasury Index, we also have the 10-year kind of rolling mean correlation to show that preferred securities tend to be more correlated and most correlated with high-yield bonds than the S&P 500, and then investment-grade corporates rather than 20-plus-year treasury. So yes, they have interest rate risk, but if we look at the actual correlations, it’s more of a credit risk story, and we are comfortable taking a little risk here.

Now, even though we’re more favorable, obviously that depends on your client’s risk tolerance, objectives, goals, time horizon, but if you are willing to take a little risk, we do see value in investment-grade corporates, high-yield corporates, and preferred securities.

And then, finally, if we talk about municipal bonds, we generally have a favorable view on municipal bonds in most environments. Right now, the story that we’re looking at and my colleague, Cooper Howard, is looking at is the supply-demand imbalance, or maybe in balance, depending on how you want to look at it. But we’ve seen muni issuance increase a lot over the past few years, mainly due to kind of funding or post-pandemic funding rolling off. A lot of municipalities had to fill that gap with more issuance. So the question, the lingering question is will demand increase or pick up to keep that supply and demand in balance?

When we look at opportunities from a yield curve standpoint, we acknowledge that the relative yields, and this chart looks at the muni to treasury, or MOB spread ratio, the relative yields of most municipal bonds are kind of at the low end of their one-year range and three-year average, and in line with our below benchmark average duration guidance for most investors, we share that with munis as well. What stands out of this chart is how high the relative yields are for long-term munis. They’re still at the low end of their one-year range and kind of at their three-year average, but you can see they are higher in absolute terms. So even though we’re not too excited about taking too much duration, if investors are, if your clients are, long-term munis might be one way to consider that in moderation, of course, just because of the high relative yields you can find.

Finally, on the credit quality angle, we generally view munis as very high credit quality. They’re much higher-rated than the broad Investment-Grade Corporate Bond Index. About 90% of the Corporate Bond Index is rated single-A or triple-B. If you look at the Bloomberg Municipal Bond Index, about two-thirds of it are triple-A or double-A, so much higher-rated. And I think this chart kind of captures the overall credit quality where we look at the median state and their rainy day fund. How long, how many days can the median municipality stay current and rely on just that rainy day fund? It’s been picking up, where you see back in the early 2000 we were at a 2.6 close to three-day low. Now we’re at nearly 50 days that the median state can survive on its rainy day fund. So that’s a good thing. Even though it’s turned down a little bit, credit quality is still relatively strong. But you want to be selective. Especially the point I made before about the post pandemic funding kind of rolling off, not all municipalities, not all services, revenue bonds will perform the same. So I think security selection is important. At a high level, we think credit quality is good, but always do your due diligence, and make sure you’re paying attention to the credits that you’re investing in.

So to kind of sum it up before I pass to Chris, we think the Fed will stay on hold for the next several meetings, but the risk of a hike have increased, but we’re not necessarily there yet. We favor a below benchmark average duration because we do see more upside risks than downside risks to long-term treasury yields. And we do see opportunities with taxable and tax-exempt bonds with investment-grade corporates, high-yield corporates, preferreds, and generally speaking below benchmark average duration with munis, but maybe opportunistically in moderation consider some longer duration investments.

And with that, let me pass to Chris.

CHRIS FERRARONE: Thanks, Collin. Good morning, everyone. I wanted to just maybe give a brief overview on what I’d like to discuss today, and following up on some comments that Liz Ann and Collin made. We’re really seeing the world from a very consistent lens.

Broadly speaking, we see the economic and market backdrop as remaining constructive, but conditions are shifting from what’s been a very benign environment the last couple of years to one that’s a more complicated backdrop. We’re facing cross currents from both major secular themes that include geopolitical turmoil to game-changing technological innovation, as well as cyclical changes, where inflation risk is reemerging, growth is accelerating. And on top of all that, the global equity market has gotten more concentrated, expectations have increased and market pricing has gotten more demanding. Overall, it is a more complicated backdrop for sure, but one that we feel remains constructive certainly for the back half of the year.

As a quick high level summary, and this really is consistent with some charts that Liz Ann showed so I can move through these quite quickly, is the basic fact that global growth has accelerated. It’s not just a US story, it’s one that we’ve seen across international developed markets and emerging markets. And it’s one also that has been a bit of a change from what we’ve seen in the last few years, where services and consumption were driving economic activity while manufacturing was weak to one that has flipped, where manufacturing is accelerating while services has moderated to some degree. And as Liz Ann pointed out, a big piece of that is related to the AI CapEx spend. The other piece that’s changing, though, is with regard to inflation. The chart on the right shows producer price indices from major economies all moving sharply higher. Certainly this has a lot to do with oil prices, but it’s also has to do with stronger economic activity and stronger demand driving some cyclical upward pressure on inflation.

From a market’s perspective, that means we’re moving from a fairly benign low growth, low inflation environment to one that’s a high growth, high inflation environment. And the chart on the left here just shows a scattered plot of our measures of that growth and inflation backdrop. So over the last 12 months, as shown in the red line, we’re moving from both a low growth and low inflation environment up into that high growth, high inflation quadrant. And historically that’s been okay for equities. The S&P 500 average return is about 7% in this phase, but it’s one that is a little bit more volatile. It can lend itself to bouts of inflation, and it’s certainly something that we want to highlight here today.

On the earnings front, again, a topic that Liz Ann touched on, but that surge in global surge in earnings we’ve seen has been a global one. Emerging markets, the US, and even Europe, which is the slowest growing region, have all seen strong growth in earnings on a backward-looking basis and also expectations increase for the next 12 months.

But that earning story is one that’s highly concentrated. These two charts look at the contribution to 2026 expected earnings growth at an industry level, but also we show tech here that is really dominated by a handful of large companies. AI linked semiconductors and digital platforms are driving a large share of that earnings growth for both the US and for emerging markets. This dynamic does create some market fragility due to the dependence that is coming through with the earnings from just a handful of these firms. And clearly it’s all been about AI.

And one chart that I found particularly interesting is the one on the right that breaks down real private fixed investment between AI-related segments and the rest of the market. And it’s been primarily driven by that AI component. In fact, you can look at this from a GDP perspective. AI CapEx is now over 2% of GDP, expected to increase to close to 3% over the next 12 months. That is approaching the size of the fiscal deficit. The fiscal deficit, the structural fiscal deficit is about 3- to 4% of US GDP. So this is not just a micro or equity market boost, but it’s serving as a macro level stimulus as well, which again, does create this issue of dependency risk that we’ve seen develop over the last several months.

Touching on valuations, broadly speaking, I would say that we’re left with a relatively thin margin of safety. Here we show on the left the price of 12-month forward earnings. Generally well above average across most major regions. There are a couple of notable exceptions. One, South Korea has got a forward PE ratio of under eight times. A big piece of that is because the denominator, or the earnings expectations, have served so much. They’ve seen triple-digit earnings growth forecasts given the boom that we’ve seen to semiconductor earnings.

The chart on the right is perhaps a different perspective. It plots the S&P 500 return on equity against price-to-book. And while there’s a high standard error in this chart, what is notable here is that the S&P 500 is currently trading about where it should be based on forecast ROE. Said differently, if ROE is able to be sustained at this record high, then the S&P is fairly valued. But if that is proving to be unsustainable or a high point in the cycle, then there is some valuation risk that comes in. And I would say if we look at this across the globe, it’s a fairly similar picture.

And with that, I can turn it over to Mike, but again, I think there’s certainly a lot of complicating factors that have come into play over the last couple of quarters, and there is uncertainty as there always is, but by and large, the economic and market backdrop remains a constructive one. And we continue to have a preference for the US and emerging markets over Europe. One of the reasons for that is given that the pressures that are coming out of Iran is having a more of a stagflationary influence on Europe than it is the rest of the world. And it’s an environment that we’re going to have to pay close attention to with regard to that concentration risk, that dependency risk, and also inflation. With that, I’ll turn it over to Mike.

MIKE TOWNSEND: Well, thanks so much, Chris, and hi, everybody, from sunny Washington DC. Great to be with you. And what I’m going to do today is just take a few minutes to highlight some of the issues that are going on here in Washington that we think advisors and investors need to be paying attention to. And in particular, we’ll talk a little bit about the election in just a minute.

But I thought I’d start with the lay of the land. I think everybody knows we have an all-Republican Washington. 53-47 is the margin for the Republicans in the Senate. I really think the thing to pay attention to over the remainder of the year in the Senate is this growing membership in what is being referred to as the YOLO Caucus for the popular You Only Live Once idea. These are members in the Senate who are not running for reelection or who have now lost their primaries, and are now something of free agents in the Senate when it comes to the president and his agenda. And the sort of founder of this caucus, I think, was Senator Tom Tillis from North Carolina, who has already been something of a thorn in the side of the administration. It was he who blocked the confirmation process for Kevin Warsh for several months before allowing that to move forward. Most recently, we have the additions of Senator Bill Cassidy from Louisiana and Senator John Cornyn from Texas, both of whom lost their primaries to Trump-endorsed challengers in May. We also have some of the kind of usual suspects, Mitch McConnell, who is from Kentucky, who is not running for reelection. Susan Collins from Maine, who has always had sort of a moderate streak. She is running in a very tight race for reelection there. Lisa Murkowski in Alaska also has that kind of moderate streak. And Rand Paul, the Senator from Kentucky, who has more of a libertarian streak. So you’re up to seven or eight kind of free agents, to some degree. I think it’s going to be really interesting to see how that plays out in the Senate. It could make it very unpredictable going forward.

217 to 212 with one independent is the balance right now in the House of Representatives. There are five vacancies. We’ve got some special elections coming up to fill those vacancies, but the House is scheduled only to be in session for about 34 days between now and the election. That could change. It could actually go down as likely as it goes up, but I think it’s indicative of the focus really pivoting in Washington towards the midterm elections, and frankly away from legislating.

But let’s talk about what things are on the agenda. On Capitol Hill, given the looming election and given the narrow margins, you’ve got really difficult time getting basic things done. We saw that last fall with the lengthy government shutdown. Then this spring we had the 76-day shutdown of the Department of Homeland Security. Just even basic tasks like funding the government, which I would argue is the most basic task that Congress has on an annual basis had become increasingly difficult, bordering on impossible.

But there are a couple of things that we are keeping an eye on as we move forward through the summer. One that I would highlight is this housing bill. Both the House and the Senate have passed with gigantic bipartisan majorities, versions of housing legislation that would attempt to boost housing supply, reduce regulatory red tape. I’d say one of the notable things about the bills is that it would ban institutional investors from owning large numbers of single family homes. That’s been something of a politically popular issue. But there are still some kind of back and forth between the House and the Senate to get this across the finish line. I do think it has a reasonable chance to get across the finish line. I think Republicans recognize that this could be kind of couched in the affordability category, which is going to be, I think, the watchword of the 2026 elections. So we’ll watch that housing bill.

The other one that we’ve got our eye on is this cryptocurrency legislation known as the Clarity Act, which would create kind of a regulatory framework for the first time for crypto in particular by granting much of the regulatory oversight authority to the CFTC, the Commodity Futures Trading Commission, with a lesser role for the SEC, create some investor protections and that sort of thing. That bill has been sort of bogged down for a while. Then it had a little burst of momentum. I’d say it’s bogged down again at this point, mostly due to a couple of things. One is a standoff between traditional banks and crypto companies over the payment by crypto companies of rewards, which look a lot like interest. That has been controversial. And then Democrats are pushing for some ethics requirements in this bill to try to put some breaks on the administration and the president’s relations to the cryptocurrency industry and benefiting from it. That may be a mountain too high to conquer, but there is still some optimism here on Capitol Hill that that could pass.

The other issue that I thought I’d mentioned, because it has gotten so much attention in the press is the prediction markets. And particularly the concerns about insider trading on political- and election-type issues really has put this issue on the front burner just in the last three or four months in Washington. The Senate has actually taken steps to ban itself, senators and staff, from betting on political and geopolitical events. The House seems to be moving in a similar direction. And there has been talk of trying to push through legislation that would make some of those restrictions apply to members of the administration as well. But this is an optics issue, I think, that has a lot of members of Congress concerned, and I would not be surprised to see more focus on this as we move through the year.

Once you get to early to mid September, Congress is going to be pretty much checking out, certainly by the end of September, to go home and campaign, and then we’ll move post election to what’s known as a lame duck session of Congress, which is typically pretty filled with all sorts of things trying to get done all in that last four- to six-week period. So it may be that the post-election lame duck session is actually the one that has much more action than anything Congress does between now and the election.

With that kind of void of legislation, you’re seeing regulatory agencies step in and be active, and I wanted to highlight four things that are going on I think investors and advisors should be aware of.

So number one at the SEC, the SEC has been focused and I think will continue to focus on sort of simplifying public company disclosure, but one of the most significant ways that they’re trying to think about that is this rule proposal that was put out a few weeks ago that would allow public companies to report their earnings semi-annually instead of quarterly. This is a big potential change. I mean, quarterly reporting has been mandated in this country since 1970. This would be optional. So the proposal is to allow companies that want to report semi-annually instead of quarterly to do so. We’re in the public comment period right now. Comments are due on July 6^th. So we’ll continue to watch how comments come in. It’s interesting to think about how companies might approach this. The sense is that larger companies probably not likely to go to semi-annual reporting. A lot of investor pressure. Also, if your competitors aren’t doing it, that would be awkward. But maybe it’s an opportunity for smaller companies to reduce some of the regulatory burden and the cost of that reporting. So we’ll see. This is an ongoing public comment period, as I said.

Over at the Department of Labor, they put out a proposal to allow 401(k) plans to have alternative assets, so think cryptocurrency or real estate or private markets. And really the way the Department of Labor approached this was to say here is a process that plan sponsors have to follow in order to do the due diligence on what types of investment options should be in the plan, and if you follow these steps, then that should give you something of a safe harbor from litigation. That public comment period just closed on June 1^st. There are about 44,000 comments that came into Labor on that. So they’re going to be sifting through that, and potentially finalizing this rule by the end of the year.

Over at Treasury, a couple of things to note. One is following up on something that he mentioned in the State of the Union address. The president did put out an executive order for a process that would help people who don’t have access to a retirement plan to have a retirement savings vehicle. And so the executive order directs the launch of a new website, trumpira.gov, which would really be kind of a one-stop shop for IRA products. There would be no preference for any one company or anything like that. Just anybody who offers an IRA product with low fees and index funds, and that sort of thing, a very simple type of IRA, could have that available on this website, and then employees who don’t have access to a retirement plan through their employer might have a vehicle to research and potentially get something. There would be a potential government match for the lowest income folks to incent them to try to start saving for retirement, but a lot more information is going to come out about this as they develop this over the next six or eight months.

And then finally, lots of attention to these Trump accounts for children. The app launched at the end of May, and the government contribution of $1,000 for eligible babies, that’s basically any baby who was born since January 1 of 2025, those will start on July 4^th. I guess technically because July 4^th is a Saturday, they’re going to start on July 6^th, the following Monday. That’s also when parents and others can make contributions. So basically these are going to be a brokerage account for children, with an array of low-cost funds to invest in. And then when the child turns 18, that will just turn into a traditional IRA. So expect a lot of marketing around this to try to make sure that people are aware of them. About six million have been signed up for to this point, but there are going to be a lot of people I think who aren’t even aware that they’re eligible for the $1,000 from the government. So that’s something that will, I think, get a lot more attention here as that contribution deadline hits just in a couple of weeks here.

Finally, I just want to talk briefly about the midterm elections. Over in the House, of course, all 435 seats are up for election. Democrats have history on their side. The president’s party has gained seats in the House of Representatives in just three midterm elections since 1906. So bottom line, midterm elections are terrible for the president’s party historically. But what’s different about this time of course is the great gerrymandering wars of the last several months, which when all has said and done, no question I think favors Republicans. So these are the redistricting process that started in Texas, and moved to California and Florida and several Southern states. I think the net is potentially eight to 10 seats for Republicans as a result of this redistricting. However, whether that actually means that the Republicans can hold onto the House of Representatives with their majority, I think is a much tougher question. We have a lot of retirements, which I think it’s the second most in recent elections ever. So I think that’s indicative of how frustrating the working in Congress has become, not getting a lot done, not really having a big impact, I think, in this atmosphere, and a lot of people are just walking away. So that’s a factor. But the gerrymandering has produced an environment where there just aren’t that many competitive seats. The nonpartisan Cook Political Report, which analyzes all races, currently has 18 House races as toss-up and just 17 more leaning in one direction or the other. That’s out of 435. 35 out of 435 are really considered competitive. When it all shakes out, I think the history, the president’s low approval rating, high gas prices, other factors, all kind of trend towards Democrats. And I think Democrats continue to be a favorite to capture the majority in the House.

Over in the Senate, you got 22 Republican Senate seats and 13 Democrat Senate seats that are open for election. Democrats need to net four in order to win the majority. And so when you kind of try to draw a path for Democrats, you got to start with the four toss-up races. Those are Georgia, Maine, Michigan, and North Carolina. Two are currently held by Republicans, two by Democrats. Let’s just say for the moment that Democrats sweep all four of those. That nets them two seats. They need two more. And Democrats have their eyes on some red leaning states like Alaska, Iowa, Ohio, where the incumbent Republican Senator just was shown to be down by eight points in a poll, Texas possibility, but Democrats would need to capture at least two of those if they sweep those four toss-up races in order to get the majority. I think that’s a hard, hard task to do.

So my bottom line right now is that I think Republicans continue to be a slight favorite to retain their majority. I think it could be very, very close. I think Democrats are a slight favorite to capture the majority in the House. I think it can be close there too. That would be a single-digit-type outcome. But if that comes to pass and you end up with a split Congress next year, obviously that is something of a recipe for a gridlock going forward. I talked about how challenging it’s been to get legislation through in the current environment. I frankly think it would be only harder to get things done in a split environment, where you had potentially the House controlled by Democrats and Republicans controlling the Senate.

So with that, I’ll wrap up, and will bring Mark back on for some Q&A.

MARK: All right, fantastic. Thank you. Thank you, Mike. We got a lot of questions submitted for the speakers and a lot of questions submitted when everyone was registering.

So Liz Ann, why don’t we start out with you here? ‘We’ve seen parabolic moves in a variety of indicators, for example, earnings, CapEx, even the market recently. When was the last time we saw something like this?’

LIZ ANN: Well, you’ve had subsets of it […audio dropout…] is in the SPAC craze in 2021. It wasn’t as broad as the categories as mentioned that you’re seeing it now. But clearly in terms of the overall market and tech as a leadership area, the last meaningful time was the late 1990s, heading into the peak in 2000. I would say there’s one important difference between the current backdrop and AI being a driver of that and back in the late 1999… or late 1990s, when we had what turned into be the dot-com bubble is that the current backdrop is one where the spend which is driving the stock prices higher is actually in line with, if not underperforming the demand. Versus the late 1990s, as it related to the telecom build out, it was a build it and they will come kind of backdrop, where the demand wasn’t there, it was the prospect of that demand in the future that drove the spending. And I think that was one of the reasons why things sort of toppled fairly quickly in the early part of 2000. So that’s an important fundamental difference between that environment and the current one.

MARK: Thanks, Liz Ann.

Let’s see, this one, I’ll send it to both you, Liz Ann, and then we’ll have Chris jump in. ‘Is the market way overvalued and really due for a 15% correction? It seems that way to me.’

LIZ ANN: Well, I’ll start and let Chris weigh in. I love the precision. I don’t know whether we’re set up for a 15% correction. I will tell you that valuation is a terrible market timing tool, especially if your time horizon is on the shorter end of the spectrum, but that’s inclusive of even a time horizon of a year. So we’ve looked at every variety of scattergram at the starting forward PE to just pick one particular valuation indicator and what subsequent one-year returns are for the S&P 500, and it essentially rounds to a zero correlation. There have been times when the market is expensive, gets more expensive and you don’t have a correction ahead of you. There’s times when the markets get really cheap, and you’re still in the throes of a bear market and has to get cheaper. So be mindful of not using valuation as a market timing tool.

The other thing to be mindful of is that we could have corrections that are rotational in nature, and that’s arguably what we’ve been experiencing this year. So the S&P as an index, at the index level, only had about a 9%-and-change pullback in the February to March period of time. So that was shy of a correction. But the average member, if you go member by member in the S&P 500, and look individually at their maximum drawdowns and take an average, that averages to negative 22%, which is actually in bear market territory. It’s just happened via a process of rotation.

So you can actually ease a valuation excess problem, a sentiment excess problem via rotation. And I think there’s just as much likelihood that it could happen like that as opposed to sort of one fell swoop kind of drop in the market.

MARK: Chris, anything to add?

CHRIS: I think there’s a couple of things to consider on the valuation front. Well, first, I entirely agree with Liz Ann. Valuation is not a timing tool. It doesn’t tell us much at all about returns over the next six months. But it does, from a longer term perspective, I think it’s useful from an asset allocation perspective, thinking about the risk premium that we’re getting in equities, broadly, relative to other asset classes. And this is relevant particularly in the current environment where inflation has risen, bond equity correlation has flipped positively, and there’s concerns about the diversification power of bonds here. A simple, overly simplified methodology would just take 22 times price-to-earnings as a percent earnings yield. That’s currently where the 10-year treasury bond is trading right now. So you’re not getting, at least at that headline level, a lot of additional return from taking incremental equity risk. But in an inflationary environment, corporate earnings are nominal, and we can see earnings help on the valuation side of things. In fact, indeed, we’ve seen that just this year with earnings growth surging.

I think the other perspective, and this relates to Liz Ann’s comments as well, is that it speaks to the need for diversification, not just from an asset allocation perspective, but within equity markets as well. And we happen to be proponents of thinking about equity exposure through vis-à-vis an economic regime lens or a thematic lens. So right now we’ve got strong cyclical growth, rising nominal GDP. It lends itself to cyclical exposure, financials exposure. On the inflation side, inflation is starting to become concerning at these levels. That speaks to exposure to energy, materials, infrastructure. And for those who are looking for broad diversification away from some of those pockets of particularly high valuations, which happen to be in the AI-related space, if you happen to be concerned about those valuations, you can look at diversification into markets like Japan, into markets like Europe, into small-caps. In fact, the Russel 2000 has actually outperformed the S&P over the last 12 months, and it’s got a much broader sector concentration than the S&P 500 does. So there are ways to manage around some of the pockets of valuation while also thinking about the diversification of your portfolio.

MARK: Great. Thank you. Thank you, Chris.

Collin, this one is for you. ‘Why should the current economic environment give us comfort in corporate bonds? What happens when the economy eventually weakens?’ And then why don’t you take that one, and then we’ve got about three or four other questions about high-yield. But why don’t you take the corporate one first, and then we’ll dive into the high-yield?

COLLIN: Yeah. I’ll start with that and kind of do quick hits on the other ones. But I appreciate all the questions on high-yield because it’s a valid question, where spreads are very low. And that’s the big question you have to ask yourself a decision you make, you know, ‘Am I being compensated enough given the current environment?’

So on that first question, Mark, ‘How can we take comfort in corporate bonds right now?’ Well, when you look at low spreads, there’s two ways to look at it. From an investor standpoint, it means we’re accepting less yield, lower yields, less compensation in case something goes wrong. The flip side is spreads are low for a reason. Corporate earnings are really strong. Chris just talked about nominal earnings, nominal growth. Things are relatively strong. So I look outside of not just the S&P 500. If I look at data from the Bureau of Economic Analysis, corporate profit data, corporate profits are at all-time highs, and we’ve seen four straight quarter-over-quarter increases. It’s slowed, the growth slowed a little bit in the most recent quarter, but in the third and fourth quarters of 2025, very strong growth rates. So companies are making money. If the economy deteriorates or the outlook deteriorates, that is a risk of course. A recession is not our base case. We think the fundamentals appear relatively solid. And we think that if you look at investment-grade, for example, they have those investment-grade credit ratings for a reason, and they should be able to withstand a potential slowdown. And if we look at high-yield, I talked about that credit ratings trend. Now, it doesn’t mean there’s no risk there. There’s plenty of risk with high-yield bonds. They have those high-yields for reason, they have low credit ratings for a reason, but we think that right now the economy is doing okay. Now, if that outlook were to change, we’d be a little bit more cautious on high-yield bonds. But right now I think the economy is okay, but of course you want to be cognizant of a potential slowdown. That’s a risk.

There were other questions in here about headlines about defaults. That’s true. I mean, defaults happen. When times are good or bad, they happen. You tend to see more defaults if the economy is slowing or we’re in a recession, but even in good times, you tend to see defaults. What we’ve seen lately is that the default rate in the public markets has been lower than the private markets or the broadly syndicated loan markets. So one of our reasons why we like high-yield bonds, I didn’t want to get into this because we only have so much time. We prefer high-yield bonds right now to bank loans, senior loans, mainly due to those credit rating trends.

There’s also a question here about what’s been driving that improving credit quality? There’s a few things… that chart I showed the increasing share of double-Bs. Part of it is upgrades. Part of it is new issues. And that ties into the idea that we’ve seen a lot of the lower-rated and riskier companies are going more to the bank loan market and the private credit markets, rather than the public high-yield bond market. So we’re seeing kind of diverging trends there, lower credit quality credit ratings with private credit and broadly syndicated loans and slightly higher credit ratings in the public market. So another reason why we think that they’re okay within the grand scheme of things that they’re still high-yield.

And then one final question, Mark, that we got was the idea that if we’re seeing improving credit quality, but spreads are still low, does it still make sense to take on that risk? Well, one thing we look at is how that makeup in credit ratings, what that means for average spreads. So if we look at the average option-adjusted spread of the Bloomberg High-Yield Corporate Bond Index, it’s right now between 2.6- and 2.7% or so. The all-time low was 2.3% back in May of 2007. If we were to take today’s credit… or sector weightings, or credit rating weightings, and make them more constant, and we look at the current mix of double Bs, single B’s and triple Cs and what that would have meant back in 2007, looking at those sub indexes, the average spread of the index would have been just over 2%. So spreads are low, but on a kind of credit rating weight-adjusted basis, they’re further away from the all-time low than you might think if you just were to look at the all-time low. So we see positive trends there, but of course there’s risks. And if the economy were to slow, if earnings were to shift from the strength we’ve seen, and start to se some issues with corporations, we would be a little bit more cautious, but for now we’re comfortable taking some risk.

MARK: All right. Thank you. Thank you, Collin.

Mike, this one is for you. ‘Do you anticipate election interference during the midterms?’

MIKE: Yeah, this is a big question, obviously. It’s a huge question. I think the question of election interference takes on all sorts of different forms. And what really I think confuses a lot of people, of course, elections are run by states. And states have wildly different rules about all aspects of voting, whether that’s voting by mail, who can vote by mail? When can you vote by mail? When does your vote by mail have to be into the office? What about early voting? Who is eligible for early voting? When does early voting stop? When does counting of votes start and stop? Do you count votes as they come in in early voting or do you not count until election day? And the result produces all these kind of different outcomes. And we’re seeing that right now in California. California has a huge percentage of its votes come in by mail-in ballot, and their law says that you have to postmark it by election day, which means that ballots can come in several days after election day. That’s produced very, very slow counts, and that’s what we’re seeing right now from last week’s primary for governor and for other offices. And so I think what is happening is this sort of… this sowing of confusion about what elections look like, and because they look so differently, that has created an atmosphere where people are less confident about voting. Election interference, meaning somehow actually manipulating the results, we’ve seen accusations of that, and very little evidence that’s possible.

So I think all those issues get sort of conflated together. Am I worried about election interference? Not in a great amount, but I am worried that there’s just a lot of confusion out there about how different states administer their elections, and that comes up and sort of feeds into this atmosphere.

MARK: Great. Thank you. Thank you, Mike.

Let’s see. Collin… maybe I’ll share this one with both Collin and Liz Ann. So Collin, why don’t you start? ‘How do you think the new Fed chair will tackle the higher inflation rate?’ And then we also have some questions about shrinking the balance sheet. So Collin, why don’t you talk about that from the fixed income angle, and then Liz Ann chime in with your thoughts on the equity market.

COLLIN: Sure. On the inflation rate front, how will he tackle it? Gingerly. Cautiously. He’s in a tough situation. When he went through his congressional hearing, he was actually relatively tight-lipped about what his views were on current monetary policy. We all assume he would have a doveish tilt, knowing that that’s what President Trump and the administration wants, but he actually didn’t really relay that message too clearly to the public and in his hearings, but we assume he probably had some sort of dovish tilt. With inflation right now still too high, we think it will be very difficult for him to publicly or privately push for lower rates. So we think we’ll have to see how the inflationary outlook evolves. He has mentioned the idea of focusing on other types of… other types of inflation ratings like trimmed mean, which have generally been lower than some of the core readings, which if you look at them in a vacuum, maybe they would open the door for potential cuts if we just kind of look at different inflation indicators. The problem there is they’re also moving in the wrong direction. So I don’t think he’ll have much success there either. So I expect him to kind of have a patient approach, but I’m not sure if he’s necessarily on board for rate hikes.

You also mentioned the balance sheet, Mark. He does have plans to shrink the balance sheet, but he made it very clear that it would have to be well-communicated, and it could take a long time. So we’re not expecting anything really big right now. Maybe there will be some hints over the next few months about how they want to do that. It would likely involve a shift in regulations, bank regulations, in terms of how much assets they need to hold, but also they need to be cognizant of what the potential impact would be on long-term treasury yields. We know that the current administration doesn’t just focus on interest rates in general. They have looked at long-term yields. Treasury Secretary Bessent has mentioned long-term treasury yields as well. So that just shows that there is a risk to shrinking it if it resulted in higher long-term yields. So something that they would have to communicate very clearly, and it would take a very long time.

MARK: Thanks, Collin. Liz Ann?

LIZ ANN: Yeah, let me add something very basic but very important because increasingly I’ve been getting a lot of questions about Warsh’s views, and what if he wants to cut, what’s that going to mean for markets? Well, Warsh is one man. He’s the Chair, he’s a powerful voice, but there’s 12 voting members. So seven would have to agree to a rate cut. So even if he comes in incredibly dovish, given the rhetoric being sort of espoused by the other members, it doesn’t look like an easing bias is in place.

And I agree with Collin. I think what’s going to be most interesting is what he starts to telegraph, whether we see a change in this statement away from an easing bias, his views and timing around any changes to periodicity of press conferences.

And then what maybe most important is even if Warsh were successful in convincing a majority to vote for a rate cut, the bond market has a say too. And I’d remind people of what happened between September and December of 2024, when the Fed cut by 100 basis points, and over that same span, the 10-year yield went up by 100 basis points, and that caused some trouble for the equity market too. So it’s also a function how markets react, and the message that that sends back to the Fed.

MARK: Thanks, Liz Ann.

Mike, I’ll give you the last question here. We had a question here about how Warsh is proposing to change how the Fed communicates, and what are your thoughts on that?

MIKE: Yeah, I think this is definitely going to be something to watch. Warsh has not committed to holding a press conference after every FOMC meeting, which is something that Jerome Powell started in 2019, but was not the case prior to that. He has also indicated that he’s not a fan of the dot-plot and of forward guidance. I don’t think he’s going to make some dramatic change right out of the gate, but I do think we’re likely to get at least some initial indication during his comments after this meeting next week, and that we may see some changes over the coming months in the frequency and depth of exactly how much the Fed communicates. He has said that he thinks the Fed over communicates. So we’ll see how that manifests itself in the coming months.

MARK: All right. Thank you. Thank you, Mike.

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Our next webcast will be on July 7^th, and that webcast will be back in our normal format, and the speakers will be Liz Ann, Collin, and Michelle Gibley will be joining us. Until then, if you would like to learn more about Schwab’s insights or for other information, please reach out to your Schwab representative. Thanks again for your time, and have a nice day.

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All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed. For illustrative purposes only. Individual situations will vary. Not intended to be reflective of results you can expect to achieve.

Past performance is no guarantee of future results. 

Investing involves risk, including loss of principal. ​Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed income investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications, and other factors. Lower rated securities are subject to greater credit risk, default risk, and liquidity risk. High-yield securities and unrated securities of similar credit quality (junk bonds) are subject to greater levels of credit and liquidity risks and may be more volatile than higher-rated securities. High-yield securities are considered predominately speculative with respect to the issuer’s continuing ability to make principal and interest payments.

Preferred securities are a type of hybrid investment that share characteristics of both stock and bonds. They are often callable, meaning the issuing company may redeem the security at a certain price after a certain date. Such call features, and the timing of a call, may affect the security's yield. Preferred securities generally have lower credit ratings and a lower claim to assets than the issuer's individual bonds. Like bonds, prices of preferred securities tend to move inversely with interest rates, so their prices may fall during periods of rising interest rates. Investment value will fluctuate, and preferred securities, when sold before maturity, may be worth more or less than original cost. Preferred securities are subject to various other risks including changes in interest rates and credit quality, default risks, market valuations, liquidity, prepayments, early redemption, deferral risk, corporate events, tax ramifications, and other factors.

Bank loans typically have below investment-grade credit ratings and may be subject to more credit risk, including the risk of nonpayment of principal or interest. Most bank loans have floating coupon rates that are tied to short-term reference rates like the Secured Overnight Financing Rate (SOFR), so substantial increases in interest rates may make it more difficult for issuers to service their debt and cause an increase in loan defaults. A rise in short-term references rates typically result in higher income payments for investors, however. Bank loans are typically secured by collateral posted by the issuer, or guarantees of its affiliates, the value of which may decline and be insufficient to cover repayment of the loan. Many loans are relatively illiquid or are subject to restrictions on resales, have delayed settlement periods, and may be difficult to value. Bank loans are also subject to maturity extension risk and prepayment risk.

Tax-exempt bonds are not necessarily a suitable investment for all persons. Information related to a security's tax-exempt status (federal and in-state) is obtained from third parties, and Charles Schwab & Co., Inc. does not guarantee its accuracy. Tax-exempt income may be subject to the Alternative Minimum Tax (AMT). Capital appreciation from bond funds and discounted bonds may be subject to state or local taxes. Capital gains are not exempt from federal income tax.

Diversification and asset allocation strategies do not ensure a profit and do not protect against losses in declining markets.

The policy analysis provided by the Charles Schwab & Co., Inc., does not constitute and should not be interpreted as an endorsement of any political party.

Indexes are unmanaged, do not incur management fees, costs, and expenses and cannot be invested in directly. For more information on indexes, please see schwab.com/indexdefinitions. 

This information is not a specific recommendation, individualized tax, legal, or investment advice. Tax laws are subject to change, either prospectively or retroactively. Where specific advice is necessary or appropriate, individuals should contact their own professional tax and investment advisors or other professionals (CPA, Financial Planner, Investment Manager, Estate Attorney) to help answer questions about specific situations or needs prior to taking any action based upon this information. Forecasts contained herein are for illustrative purposes only, may be based upon proprietary research and are developed through analysis of historical public data.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.

Source: Bloomberg Index Services Limited. BLOOMBERG^® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively "Bloomberg"). Bloomberg or Bloomberg's licensors own all proprietary rights in the Bloomberg Indices. Neither Bloomberg nor Bloomberg's licensors approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.

This material is for institutional investor use only. This material may not be forwarded or made available, in part or in whole, to any party that is not an institutional investor.

©2026 Charles Schwab & Co., Inc. All rights reserved. Member SIPC.

This material is intended for general informational and educational purposes only. This should not be considered an individualized recommendation or personalized investment advice. The securities and investment strategies mentioned are not suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decisions.

All expressions of opinion are subject to change without notice in reaction to shifting market, economic or political conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

All corporate names and market data shown are for illustrative purposes only and are not a recommendation, offer to sell, or a solicitation of an offer to buy any security.

Forecasts contained herein are for illustrative purposes only, may be based upon proprietary research and are developed through analysis of historical public data.

Please note that this content was created as of the specific date indicated and reflects views as of that date. Opinions may change, without notice, in reaction to shifting economic, business, and other conditions.

Indexes are unmanaged, do not incur management fees, costs, or transaction fees or other related expenses, and cannot be invested in directly. For more information on indexes, please see ​Schwab.com/IndexDefinitions

Past performance is no guarantee of future results. 

Investing involves risk, including loss of principal.

International investments involve additional risks, which include differences in financial accounting standards, currency fluctuations, geopolitical risk, foreign taxes and regulations, and the potential for illiquid markets.

Investing in emerging markets may accentuate this risk. Emerging Markets Risk. Emerging market countries may be more likely to experience political turmoil or rapid changes in market or economic conditions than more developed countries. Such countries often have less uniformity in accounting and reporting requirements and greater risk associated with the custody of securities. In addition, the financial stability of issuers (including governments) in emerging market countries may be more precarious than in other countries.

Diversification and asset allocation strategies do not ensure a profit and do not protect against losses in declining markets.

Performance may be affected by risks associated with non-diversification, including investments in specific countries or sectors. Additional risks may also include, but are not limited to, investments in foreign securities, especially emerging markets, real estate investment trusts (REITs), fixed income, municipal securities including state specific municipal securities, small capitalization securities and commodities. Each individual investor should consider these risks carefully before investing in a particular security or strategy.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.

This material is for institutional investor use only. This material may not be forwarded or made available, in part or in whole, to any party that is not an institutional investor. 

©2026 Charles Schwab & Co., Inc. All rights reserved. Member SIPC.

OECD Composite leading indicator (CLI) is an index designed to provide early signals of turning points in business cycles showing fluctuation of the economic activity around its long-term potential level. This indicator is measured as an amplitude adjusted index, long-term average = 100.

Global Manufacturing Purchasing Managers Index (PMI) is a survey-based indicator of the economic health of the global manufacturing sector. The PMI index includes the indicators of new orders, inventory levels, production, supplier deliveries, input prices, output prices, and the employment environment. It is a diffusion index, meaning that a reading above 50 indicates expansion in the sector compared to the previous month and a reading below 50 indicates contraction.

Global Services Purchasing Managers Index (PMI) is a survey-based indicator of the economic health and business activity of the global services sector.

Capital expenditures (CapEx) are funds companies use to acquire, upgrade, or maintain physical assets like buildings, technology, or equipment, with the goal of increasing operational scope or future economic benefits. By investing in fixed assets, such as building a new factory or upgrading technology, companies aim to enhance their operations, ensuring sustained growth and competitive advantage. CapEx decisions reflect strategic intent, positioning businesses to leverage new opportunities and optimize their physical infrastructure.

The policy analysis provided by the Charles Schwab & Co., Inc., does not constitute and should not be interpreted as an endorsement of any political party.

This material is intended for general informational and educational purposes only. This should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned are not suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decisions.

All expressions of opinion are subject to change without notice in reaction to shifting market, economic or political conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

This information is not a specific recommendation, individualized tax, legal, or investment advice. Tax laws are subject to change, either prospectively or retroactively. Where specific advice is necessary or appropriate, individuals should contact their own professional tax and investment advisors or other professionals (CPA, Financial Planner, Investment Manager, Estate Attorney) to help answer questions about specific situations or needs prior to taking any action based upon this information. Certain information presented herein may be subject to change. The information or material contained in this document may not be copied, assigned, transferred, disclosed or utilized without the express written approval of Schwab.

Investing involves risk, including loss of principal.

Past performance is no guarantee of future results.

Digital currencies [such as bitcoin] are highly volatile and not backed by any central bank or government. Digital currencies lack many of the regulations and consumer protections that legal-tender currencies and regulated securities have. Due to the high level of risk, investors should view digital currencies as a purely speculative instrument.

Please note that this content was created as of the specific date indicated and reflects the author’s views as of that date. It will be kept solely for historical purposes, and the author’s opinions may change, without notice, in reaction to shifting economic, business, and other conditions.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.

This material is for institutional investor use only. This material may not be forwarded or made available, in part or in whole, to any party that is not an institutional investor.

©2026 Charles Schwab & Co., Inc. All rights reserved. Member SIPC.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here are not suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. 

All expressions of opinion are subject to change without notice in reaction to shifting conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Small-Cap Company Risk. Small-cap companies may be more vulnerable to adverse business or economic events than larger, more established companies and their securities may be riskier than those issued by larger companies. The value of securities issued by small-cap companies may be based in substantial part on future expectations rather than current achievements and their prices may move sharply, especially during market upturns and downturns. In addition, small-cap companies may have limited financial resources, management experience, product lines and markets, and their securities may trade less frequently and in more limited volumes than the securities of larger companies. Further, small-cap companies may have less publicly available information and such information may be inaccurate or incomplete.

High-yield securities and unrated securities of similar credit quality (junk bonds) are subject to greater levels of credit and liquidity risks and may be more volatile than higher-rated securities. High-yield securities are considered predominately speculative with respect to the issuer’s continuing ability to make principal and interest payments.

Diversification and asset allocation strategies do not ensure a profit and do not protect against losses in declining markets.

Investing involves risk, including loss of principal.

Past performance is no guarantee of future results.

This information is not a specific recommendation, individualized tax, legal, or investment advice. Tax laws are subject to change, either prospectively or retroactively. Where specific advice is necessary or appropriate, individuals should contact their own professional tax and investment advisors or other professionals (CPA, Financial Planner, Investment Manager, Estate Attorney) to help answer questions about specific situations or needs prior to taking any action based upon this information. Certain information presented herein may be subject to change. The information or material contained in this document may not be copied, assigned, transferred, disclosed or utilized without the express written approval of Schwab.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.

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