MARK RIEPE: Welcome, everyone, to Schwab Market Talk, and thanks for your time today. It’s April 7^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. I head up the Schwab Center for Financial Research, and I’ll be your moderator today. We do these events monthly, and we’ll start out by discussing some of the top themes on the minds of our strategists. We’ll do that for about 30 minutes, and then we’ll start taking live questions. If you would like to ask a question, just type the question into the Q&A box on your screen and click submit, and you can do that at any time during today’s event. 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 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. Schwab will submit your credit to the CFP Board on your behalf. In case you don’t see it, don’t worry, you should see it again at the end of the webcast. For CIMA credit, you’ll have to submit that on your own. Approximately 15 minutes after the shows start the directions for how to submit will be found in the CIMA widget that will be appearing on the bottom of your screen. Finally, we’ve got one more option for people who need proof of attendance. The widget is called Certificate of Attendance, and that will be found at the bottom of your screen in the widget dock. The certificate will be available after 50 minutes of attendance. Last thing before our speakers join, I want to call your attention to a couple of resources on the console screen. In the top right-hand corner, you’ll find a link to a client-approved article on concentration risk, and in the bottom right, you’ll find links to additional resources, including a link to our latest market commentary.

Our speakers today are Collin Martin, Managing Director and our Chief Fixed Income Strategist; Liz Ann Sonders, Managing Director and our Chief Investment Strategist; Mike Townsend, Managing Director with our Legislative and Regulatory Affairs Group; and Michelle Gibley, our Director of International Equity Research and Strategy. If any of you are podcast listeners, check out On Investing. That’s a podcast co-hosted by Liz Ann and Collin, and WashingtonWise, which is hosted by Mike.

So Collin, why don’t we start with you? How has your Federal Reserve policy outlook, how has that changed since the start of the war with Iran?

COLLIN MARTIN: Yeah. Hi, Mark. Hi, everyone. It has changed a little bit, just like most market expectations have shifted. So coming into the year, we expected the Fed to cut rates one or two times, mainly due to inflation that was still sticky, but expected to decline as the year went on. Our view was a little bit less dovish than the market, I’d say. The implied probability from the Fed Funds Futures market earlier this year was for two to three cuts, and a rate near 3% by year-end. That’s since shifted though, mainly due to the war in Iran. We’re backing up our outlook a little bit, and we’re expecting no cuts or maybe one cut. And then it’s a little bit open-ended, mainly because there’s a lot of time between now and the end of the year. We have nearly nine months to go, and a lot can change between now and then. The focus will likely be on the inflation outlook, given the oil price shock for now.

But on the bright side, anyone concerned about, say, the negative consequences to economic growth and what that might mean for the labor market, that appears to be on hold for a little bit, given last week’s relatively optimistic Jobs Report, because that’s really the key risk that we’re seeing right now, where the Fed’s mandates might be in a bit of tension if inflation is picking up with the labor markets weakening, but that doesn’t appear to be the case right now.

We think though, that the Fed can probably just sit back and be on an extended pause for a number of meetings, and they can kind of look through the increase in inflation right now, or the expected increase in inflation. And we’re careful to use the term ‘transitory’ about this, but obviously a lot of this is driven more by the price of oil and price of gas, as opposed to other products. And the Fed will really focus on inflation expectations to make sure that they remain relatively well anchored. And so far that’s the case. Short-term inflation expectations have risen, but if you look at five-year breakeven rates from the TIPS market, they’re up, but not at levels we saw a few years ago, and 10-year breakeven rates are very well anchored right in the middle of their three-year range or so.

Now, on the idea of the next move potentially being a hike, because that makes a lot of headlines, we think the bar for a hike is very high right now. Again, we think the Fed can kind of look through any potential rise in inflation, and we do worry the longer this conflict goes on that we can see a hit to growth. So we don’t expect a hike. We think the next move will be a cut, but it will probably be a handful of months and meetings before we get that next cut.

MARK: Collin, all treasury yields have risen since the start of the war. Do you expect that to continue, or is there an opportunity maybe to add some longer-term maturities into the bond portfolio?

COLLIN: Well, we do think that the upward trend in treasury yields can continue for a little bit, especially given the potential inflationary concerns. Short-term yields, say, treasuries of two years or less, they might not have much upside from here. They’re much more tied to the Fed Funds outlook over the short run, and since we don’t expect the Fed to hike, those will probably kind of stay in their range. But if we look at intermediate- and long-term treasury yields, we still think they can move a little bit higher. Coming into the year, we thought the 10-year treasury yield, for example, would stay above 4% and could touch 4-1/2%, and it got very close a few weeks ago at the end of March. It touched on an intraday basis, I think, 4.48%. And all the factors that we saw that we expected to keep long-term yields elevated and even allow them to move up are still very much in play right now. Those factors were inflation that was still too high and above the Fed’s 2% target. That’s expected to move even higher over the short run. So investors might demand higher yields to compensate for the risk that inflation does pick up for an extended period of time because inflation can kind of eat away at the income and returns that fixed rate bonds offer. Fiscal concerns were a concern that we had, and those aren’t going away. If not, we might need to see more treasury issuance over the short run because wars tend to be expensive, and they need to be funded. So we might need to see even a pickup in treasury issuance to fund that. And the global bond market. Coming into the year, we thought global bond yields would probably just hold steady and might not fall much further, where we expected US yields to gradually fall based on our outlook for the Fed to gradually cut rates. But what we’ve seen is global yields rise as much or even more than US treasury yields lately, mainly due to different mandates from various central banks. The European Central Bank, for example, has one mandate, just price stability. So they’re focusing more on inflation than potential hits to the labor market. So if you look at hike probabilities, it’s likely that the ECB and the BOE will continue to hike this year, or will switch to hikes this year, and it looks like the Bank of Japan could hike as well. So rising global bond yields could put somewhat of a floor under treasury. So we still think they’ll probably trade range-bound in that 4- to 4-1/2% range, but there is some upside, Mark.

So could there be opportunities with taking some more interest rate risk and focusing on longer-term maturities? Maybe a little later. We just think there’s so much uncertainty given the situation in the Middle East right now that we don’t want to get ahead of that if inflation does, in fact, continue to rise more than expected. But at some point, if we see them rise, say, closer to 5%, maybe that would present an opportunity for more long-term investors to lock in what we would think is a pretty attractive yield.

MARK: So Collin, does that... I detected a note of caution there, and does that also extend to taking maybe a little bit of extra credit risk, or are there some, actually, opportunities where you’re getting paid enough to take on some additional credit risk?

COLLIN: There aren’t too many opportunities to take too much risk today, but we’re trying to identify some. And one area that we find relatively attractive and have a more favorable view on is preferred securities. Now, that might sound a little bit counterintuitive because I just said that we’re a little bit cautious about taking too much interest rate risk now, but preferred securities do have a little bit of interest rate risk and credit risk, but you hit the point, Mark, about, well, are we being compensated enough for those risks? And we’ve seen a move up in preferred securities’ yields. So the index that we track, it’s the ICE BofA Fixed Rate Preferred Securities Index. It’s mostly investment-grade-rated, mostly triple-B-rated preferreds. And the average yield-to-worst is close to 6-1/2% right now. So we think that’s more attractive than it’s been, and it’s at the high end of its two- or three-year range. But if we compare it to, say, triple-B-rated corporate bonds, so if we compare it on a like rating basis, triple-B versus triple-B, you get a more than 100 basis point yield advantage there, and that’s higher than it’s been for a little while. So we see some opportunities there, but we caution that they do tend to be volatile. You probably need to ride some ups and downs to earn those higher yields that they offer.

Now, looking at other types of riskier corporate bonds, we’re a little bit more cautious on bank loans right now, mainly because of potential spillover from private credit. If you look at the bank loan market, most bank loans of the Bloomberg Bank Loan Index, about 75% are rated single-B or lower. So kind of a riskier profile compared to high-yield bonds. We’re a little bit more cautious on bank loans than high-yield. We’re more neutral on high-yield. Spreads have reversed a little bit recently, but they’re back to a level that we would say is rich. And it all goes back to the risk-reward and how much extra yield are you earning to invest in riskier investments. And with spreads coming down, the outlook isn’t super attractive for high-yield bonds. So we’re more neutral there. You can hold them within the strategic weightings, but we wouldn’t suggest an overweight. Maybe there will be an opportunity down the road if the outlook improves or if we see a better entry point from spreads, but we’re not there yet.

MARK: Thanks. Thanks, Collin. Liz Ann, why don’t we bring you into the conversation? Maybe we should start with the economy. Collin mentioned the Jobs Report last Friday. What’s your reaction to that report?

LIZ ANN SONDERS: So it was almost across the spectrum of subcomponents that you get when you get a Jobs Report. So subcomponents beyond just payrolls and unemployment rate were relatively healthy. The payroll reading at 178,000 was three to four times consensus estimates, depending on what consensus you’re using. You could poke holes in it. Number one, we’re finding these days that the jobs data is more subject to revision than has been the case in the past. And there’s several reasons for that, but part of it is just a lower response rate, especially in the early part of the window of companies providing information to the Establishment Survey, which is what the Bureau of Labor Statistics does to generate the payroll numbers. In addition, I think it was 76,000 of the 178,000 increase in payrolls were the striking nurses, the Kaiser Permanente nurses that came back onto the payroll. So that’s not something that is repetitive in nature. You did also, though, see some corroboration of not dire Jobs Report numbers, given that we got a better than expected reading on Challenger layoff announcements. So in total, I’d suggest that we’re still in a bit of that low hiring, low firing kind of backdrop. Companies are not in a position to think that mass layoffs are the right tact to take given ongoing instability around policy, obviously the war, but they are limiting hiring. So I think that’s the backdrop that we’re likely to continue to see.

Now, the only real negative that has come about since we had the Jobs Report last week was the ISM Services Index came out yesterday, and that was weaker than expected. Still in expansion territory at the headline level for ISM services broadly, but the employment component sunk like a stone. So that tends to be more of a leading indicator, the PMIs, ISM’s version, S&P Global’s versions, those are considered leading indicators, and that employment component was eye-popping, not in a good way. So I’d say we’re in a stable kind of backdrop from a labor market perspective with those PMIs.

MARK: Liz Ann, the administration intended the One Big Beautiful Bill Act, they intended that to be kind of a stimulant to the economy this year, but now we’ve got some pretty dramatic increases in oil prices that don’t appear to be going away anytime soon. What is your take on the relative strength of those two things? Do they more or less offset each other or are there some other dynamics there?

LIZ ANN: I mean, lots of economists are attempting to put numbers on this. I would say the consensus is somewhere around mostly being offset by the war in Iran and the impact on energy prices to still a marginal benefit accruing from the One Big Beautiful Bill and only partly offset by the increase in energy prices. So it really depends on what data that you’re looking at.

I do think it almost inevitably widens the gap between the upper end and the lower end, so reinforces the K-shaped nature of this, because more of the benefits of the One Big Beautiful Bill accrue to the benefit of upper income folks. They tend to have energy costs and food costs as a lower percent of the income that they’re generating. In stark contrast, you’ve got the lower end of the income spectrum. That per dollar of income spends a lot more on those core components of energy and food, and they also had a hit associated with the One Big Beautiful Bill, given some of the decline in transfer payments. So I think, unfortunately, it exacerbates the K shape.

And as it relates to the feeder into inflation, I’ll also remind people, and we’ve talked about it in these episodes in the past, Mark, you’ve got... when you look at inflation components… and there’s a lot of ways to slice and dice inflation. You can look at goods versus services, which is a common way to separate out various components. But one of the things that I look at quite regularly is discretionary versus non-discretionary components within an inflation metric like CPI. And it’s those non-discretionary components’ inflation rate that’s been running hotter than the discretionary components. And again, to square the circle, the lower income folks spend a larger share of their take-home on those non-discretionary, those needs components. Another way to think about how this exacerbates the K nature of this.

MARK: Last question for you, Liz Ann, and then we’ll switch things to Mike. Collin gave us his perspective on the Fed. How do you see the equity market reacting to whatever the Fed is going to be doing? And then I guess I’ll follow up more, just more generally, what do you see that equity investors are paying attention to? What are the drivers for the equity markets right now?

LIZ ANN: Yeah. No, as you’ve seen a change in rate expectations, you went from, to Collin’s point, having one to two cuts priced in, to then no cuts, and then for a brief period, you actually had the market pricing in the potential for rate hikes. It’s hard to separate individual drivers as to what has caused some of the volatility and weakness in the market. I think in the last five weeks, it’s had more to do with the war and oil prices than it has on expectations around Fed policy, although you could probably at least point a partial finger to the pricing in of rate hikes, not all that long ago in some of the volatility in the market. Our US market is still at the mercy of oil prices.

I keep track on a day-to-day basis and intraday correlation of Brent oil prices to the S&P 500, and with the exception of only two trading days since the war erupted, that has been in deep inverse correlation territory. So oil prices up on a day-to-day. On an intraday basis, you tend to see the stock market down. That is accrued to the benefit, obviously, of the energy sector, which since the war began, the energy sector is the only sector with positive performance, up 9- or 10%, I think, since the war began. Every other sector has negative performance. At the worst end of the spectrum, actually, healthcare, consumer staples at the low end. So interestingly, not strong performance in relative terms by the defensive sectors, which you might expect given concerns about the feeder of energy into the economic backdrop.

It’s also the case that… I get a lot of questions about, ‘Explain to me how the market has been so resilient in the face of everything that’s happening,’ given that the maximum drawdown for the S&P 500 on a year-to-date basis is still shy of correction territory. Maximum drawdown for the S&P at the index level is 9%. But the average member, if you go member by member in the S&P 500, and you look at each member’s individual maximum drawdown and then take an average, that’s negative 18%. If you do that for the NASDAQ, the NASDAQ at the index level has had a correction level maximum drawdown, negative 13%. At the average member level for the NASDAQ, it’s negative 33%. That’s deep bear market territory. These drawdowns, though, at the member level have happened via process of rotation and churn, not an all at once phenomenon. That’s probably a better way to go through a corrective phase, to have it happen via rotation than the bottom falling out all at once. But I think the fuller story of what the market has been doing gets told under the surface of just these index level returns.

MARK: Thanks, Liz Ann. Mike, welcome back. What’s the feeling in Washington right now about the Iran situation. For example, from a Washington perspective, how is the war going? The Pentagon is requesting for an additional, I think, $500 billion for their budget next year. What’s going to be the reaction to that? And I guess what are just the political ramifications, if any, as we head into elections in the fall?

MIKE TOWNSEND: Yeah. Well, Mark, great to be with you. Great to be with everyone today. I think first of all, we just have to acknowledge the human toll of the war, potentially thousands of lives lost in Iran, most of them ordinary citizens. Thirteen US service members have been killed. And obviously we have a big deadline tonight, and the president promising more destruction. So I think that’s all contributing to this just air of uncertainty on Capitol Hill about what the short-term goals are, what the longer-term goals are, what winning is, what the exit strategy is. And I think that’s going to come to a head, as you mentioned, in some of these funding questions. That’s going to be where Congress is going to have to weigh in. The Pentagon has asked for $200 billion in emergency funding. The president has requested that Congress pass 350 billion in funding by June 1^st. So Congress is going to have to confront this head on, and take some difficult votes, I think, in the weeks ahead.

Politically speaking, this is a really tough one. The war is unpopular with voters according to lots of polls. I think there’s a lot of concern among Republicans about US involvement in foreign wars, which was something many ran specifically, campaigns specifically on avoiding. But I think the biggest political challenge is gas prices. It’s a very visceral number for voters. Everybody knows how much they pay for a gallon of gas. And for a lot of voters, it’s kind of a proxy of the economy itself. You ask voters about the economy, they’re not quoting you CPI numbers, they’re thinking about prices. They’re thinking about gas prices and food prices. Am I paying more for gas and food? And does that mean I’m spending less on things I want to do like dine out or travel or shop?

I think the problem is that the war could end tomorrow, but it’s going to be months to straighten out the shipping in that part of the world, to get oil flowing and moving again, to smooth out supply chain problems. And gas prices don’t come down with the same speed that they go up. So I think that’s a really tricky environment for members of Congress, particularly heading into a midterm election this fall, where they’ve got a lot of voters who have a lot of concerns about what’s happening in their pocketbook.

MARK: Mike, I want to kind of go back to the Fed, and something both Liz Ann and Collin spoke about. We still haven’t really resolved a lot of the personnel issues at the Fed. So tell me a little bit about what’s the latest on Jerome Powell, what’s the latest on kind of the timing of the confirmation for Kevin Warsh, and I don’t know, anything else going on with the Fed that you’re aware of?

MIKE: Yeah, I think there are a couple of different things going on that are worth paying attention to. First off, as everyone knows, Jerome Powell’s term as chair ends on May 15^th. The president has nominated Kevin Warsh, a former Fed governor, served from 2006 to 2011, as the next chair. Warsh’s confirmation hearing before the Senate Banking Committee has now been scheduled. It’s going to take place next week, on April 16^th. But when he is actually going to be confirmed is much less certain, and that’s because Senator Tom Tillis, a Republican from North Carolina, who sits on the Senate Banking Committee, has been blocking Warsh’s confirmation until the criminal investigation into Jerome Powell is resolved. Now, the Justice Department has been investigating whether Powell lied to Congress when testifying last year about the Fed’s massive renovation of its headquarter building in Washington. You may remember the president came and visited the renovation last summer, had this kind of odd press conference with him and Powell wearing hard hats and sort of bickering over the cost of the renovation. That investigation is still ongoing. So it raises the possibility that Warsh may not get a confirmation vote before May 15^th. If that’s the case, Powell has said that he will stay on as Chair Pro Tem, basically temporary chair until the case is resolved and Warsh is confirmed.

I think the other bit of intrigue here is that Powell’s term ends on May 15^th, but his term as a regular Fed governor runs until 2028. There’s actually only one historic precedent for a Fed chair to stay on as a Fed governor after his term as chair has ended. That happened in 1948. But it might happen again because if Powell stays on, there will be no vacancy at the Fed for the president to nominate someone new to fill. And he was asked about this last month, and Powell said he would do what is in the best interest of the institution and the people it serves, which frankly sounds a lot like someone planning to stay on. So we’ll see what happens there.

I think the final point I would make is that the president has made no secret that he wants rates lowered quickly. Kevin Warsh seems to be willing to push for that when he becomes chair. But the problem is there are 12 voting members of the FOMC, and very few of them seem to be inclined to cut rates anytime soon. And ironically, when Warsh is confirmed, he will actually bump Stephen Miran off of the Fed Board. He’ll go into Miran’s seat. And Miran is the one Fed governor who has consistently advocated for lower rates. He has dissented in every vote since he was confirmed last September. So I just don’t know where Warsh gets the votes to lower rates, certainly as quickly as the president wants.

So a lot of intrigue, a lot of moving pieces still going on that will be sorted out in the weeks ahead.

MARK: All right. Thanks, Mike. Last question for you. There’s a lot going on in Washington from a regulatory standpoint. So what are the handful of things that are probably most important to RIAs and investors right now?

MIKE: Yeah, a couple of things. First, this administration is very much in a deregulatory mode. So in some ways, the action has been in things going away. For RIAs, that includes the Biden era rule requiring RIA firms to have their own anti-money laundering program. That’s been withdrawn. We just saw courts toss out the Labor Department’s Fiduciary Rule, which governs who is a fiduciary in the retirement context, particularly when it comes to IRA rollovers. The Labor Department has said it doesn’t plan to pursue that rule going forward. And then we have a couple things coming down the pike that I wanted to highlight.

First, the SEC, probably later this month, is going to propose its rule to allow public companies the option of reporting earnings on a semi-annual basis rather than quarterly. It would be optional. It’s receiving some pushback from Wall Street even before it’s been officially published. So I think that’s going to be an interesting one to watch.

Second, last week, the Labor Department proposed a rule that would allow alternative investments, crypto and private funds, to be included in 401(k) plans. This one is now in a public comment period until June 1^st. The DOL would like to finalize that by the end of the year. But that would provide more options for retirement plans, potentially. But of course companies and plan sponsors would have to make that decision. It’s not mandated that they go in with those types of investments.

And then third, the administration is moving really quickly to get these Trump accounts, the accounts for newborns, up and running by mid-summer. Every child born from 2025 through 2028 is going to get $1,000 from the government in a brokerage account. Parents and grandparents and employers can contribute. And then when the child turns 18, the account converts to an IRA. There’s still a lot of questions about the mechanics of how these are going to work, but these accounts are coming. The administration is making a big public push to make sure people are aware that they’re coming. I definitely think it’s something that advisors should be making sure they’re up to speed on so they can respond to questions as those come online.

MARK: All right. Thank you. Thank you, Mike. Michelle, I’ve got a few questions for you. Maybe going back to oil for a second, how does the spike in oil prices, how is that affecting the earnings of international companies?

MICHELLE GIBLEY: Well, we don’t have earnings season yet to start, but we can make some inferences from the survey data. We’ve got the Purchasing Manager Index data. Globally, the early indications really show a slowdown in services and actually a surprising uptick in manufacturing in some regions, such as the Eurozone and the US, and also for large manufacturers in China. We’re also seeing those inflation pressures already evident, increases in input prices and output prices. And a reminder, it’s not just energy prices, it’s a range of inputs, like fertilizer, aluminum, helium for semiconductors, naphtha for plastic. Plastic goes into a lot of things, including food packaging. The longer that this supply shock lasts and energy prices stay elevated, the greater the chance that these price increases feed into inflation expectations and wages. So far, the longer term inflation expectations remain anchored, but some manufacturers are already raising prices, and they have these memories of 2021 and 2022 kind of fresh in their minds, and they don’t want to get behind the ball. At the same time, Amazon is reportedly rejecting wholesaler supply requests to raise prices. So how companies balance either raising prices or reducing their margins will likely depend on the pricing power for the individual industry.

And if we look at earnings so far at the aggregate level, for Japan, there’s really not a lot of change. It actually increased a little bit since the war started. In emerging markets, they’ve also increased. Europe, earnings are a little changed. Analysts there seem to have a little bit less conviction on the direction of earnings in Europe, Mark.

MARK: Thank you, Michelle. The next question for you really has more about…let’s call it sort of winners and losers. How is the conflict in the Middle East, how has that affected economy… affected economies around the world? And you’ve talked in the past about the enthusiasm for rising defense spending long before the Iran conflict. Do you see the rise in oil prices offsetting a lot of that economic boost coming from that defense spending?

MICHELLE: Well, Europe and Asia are more dependent on energy imports than the US, and a lot of those imports come from the Middle East, so that is a negative for them. And the hit to energy supply is a hit to economic growth because economic activity is energy transformed. So if we look at more advanced economies, they have the resources to pay up higher prices to excess deliveries of oil and gas, but less advanced ones are having to face some rationing. We’re seeing this in places like the Philippines and Thailand. Within emerging markets, there’s four countries that represent 75% of the EM Index. So from a stock perspective, these are China, South Korea, Taiwan, and India. South Korea and Taiwan, importantly, are both very big energy importers. They’re about 20% each of the index. And to avoid disruption to their businesses, particularly on semiconductors, these countries are securing alternate sources of LNG. They’re relaxing coal constraints. And in South Korea’s case, they’re restarting nuclear reactors that are currently under maintenance. So right now, they have enough energy in the near term, but longer-term they could be at risk if the conflict and higher energy prices linger. For Europe, the negative hit from energy does reduce economic boost to the overall economy from higher defense and infrastructure spending. But as you mentioned, we’ve been talking about this for over a year. Defense is likely to be a growth industry for the next couple of years. We’re seeing threats by the US to withdraw from NATO, threats against Greenland, and now this conflict in the Middle East. So defense names could continue to do well.

MARK: Okay. Last question to you, Michelle, and then we’ll open it up to live Q&A. So feel free to submit your questions, and we’ll start answering those as many as we can in just a little bit. Michelle, at the beginning of the year, we had a positive view on international stocks. Has the conflict and recent events altered that view… and we actually just got a question submitted… especially in light of the much stronger dollar recently?

MICHELLE: Yeah, the economic and earnings acceleration that we expected at the start of this year has been delayed. So we are less bullish about the ability for international stocks to outperform in the near-term, but international stocks still provide a diversification benefit to US stocks. Once the conflict in the Middle East ends and energy supply becomes more available at lower prices than they are currently, global growth at some point could reaccelerate from a lower base. International stocks are very attractively valued. They’re trading at a forward PE of 15 times, while the US trades at 20 times.

On the dollar, the dollar strength has reduced the MSCI EAFE return by about 300 basis points since the end of February, but we believe the dollar weakness could resume after energy prices retreat. And the reason is that a lot of the rebound in the dollar recently is due to these terms of trade shock. And so places like Europe have to pay more to import oil, and so that puts downward pressure on their currencies. Once that goes in reverse, the dollar could resume its weakening trend. Additionally, we think there’s a gradual shift away from the dollar due to geopolitical fracturing of international relations, and a weaker dollar does tend to benefit international stock returns.

MARK: Great. Thank you. Thank you, Michelle. And let’s send the first question to you, Collin. ‘Collin, what is your outlook for municipal bonds?’

COLLIN: Sure. Yeah, our outlook for munis right now is relatively neutral. So muni yields, specifically muni relative yields compared to treasuries, got very rich earlier in the year. And that tends to happen most years, it’s a seasonal effect. So the entry point was not super attractive, but they’ve since moved up. And so if we look at the MOB spreads, muni yields relative to treasury yields, whether it’s 5 or 10, up from the lows earlier this year, but more kind of in line with averages over the past few years.

But when we look at munis from a valuation standpoint, it tends to matter most for investors and your clients who are in kind of those mid-range tax brackets. For people who are in the lower tax brackets, usually taxable investments make sense. For those in, say, the 32% and above tax brackets, more often than not, munis make sense. It’s really that mid-range where you want to do the math. And valuations have improved a little bit, but they’re still a bit rich in our view.

From a fundamental standpoint, we’re very comfortable with the fundamentals of munis. And we always like to compare them to kind of average credit ratings of the corporate bond market. If you look at the investment-grade corporate bond market, that 90% of the index is rated single-A or triple-B, so the lowest two rums. It’s very different with munis, where about I think two-thirds of the index is triple-A or double-A. So you’re looking at much higher-rated munis. And then when you compare them on an after-tax basis, you can get, depending on the tax bracket, higher yields than corporates with much higher credit quality.

So I guess that to sum it up, it depends on what your clients’ tax brackets are, but if you’re in the, say, 20- to 30% average effective rate, that’s when you want to make sure you’re doing the math to maximize your after-tax income.

MARK: Thanks. Thanks, Collin. Let’s see, Mike, ‘Where do things stand with tariffs? The last updates from the Congressional Budget Office estimated that the Supreme Court ruling would grow the US deficit by $2 trillion. Have there been any updates since the SCOTUS ruling, or do you expect a long legal battle?’

MIKE: Well, I guess I’ll answer the last part first. Yes, I expect a long legal battle. That’s probably mostly going to be focused on refunds.

I’ll come back to that in just a second, but just kind of lay the land on where we are with tariffs. So post Supreme Court decision, the administration, the president used an emergency authority to impose a global 10% tariff for 150 days. So that is a clock running until July 22^nd. And that’s kind of a one time use of that particular emergency authority. In the meantime, the administration is doing the investigations that I would describe as kind of the normal way that tariffs historically have been imposed. So there’s a couple sections in the Trade Act of 1974 where the Department of Commerce or the US Trade Representative’s Office conducts an investigation on a particular product or imports from a particular country, and there’s a whole process. There’s a public comment period, there’s a report that’s issued, and at the end of that, potentially tariffs can be imposed. So that’s the way that tariffs on products have been imposed to-date. So you’re talking steel, aluminum, copper, automobiles, baby furniture, those kind of specific product-oriented. There’s a whole bunch of those more in the queue. Those typically take several months to complete. I expect the administration will try to expedite that process. So at some point later this year, I think you’ll start to see announcements of sort of one-off specific targeted types of tariffs.

But I think the bottom line is that it’s unlikely that these collective efforts will replace the amount of revenue that was being received when the tariffs were fully in place. And I think that’s where the deficit question comes, because of course the One Big Beautiful Bill Act and other legislation has used the tariff revenue as part of the offset for tax cuts and that sort of thing.

One other comment just on refunds, really interesting to watch. There’s some 150 billion or more potentially that could be refunded to companies that’s still tied up in various legal challenges, but it wouldn’t shock me at some point to see that refunds start to happen. And that’s potentially a big influx of cash into companies. So I think that’s something to be watching later this year.

MARK: Thanks, Mike. Liz Ann, this one is for you. ‘It seems that Q1 and Q2 earnings may be weaker due to the Iran conflict, resulting in delayed demand. That said, could we see strong second half earnings per share delayed demand, not demand destruction?’ And the second part of that question, ‘Are there any other unexpected upside surprises that you’re tracking?’

LIZ ANN: Well, first off, I’d say that there hasn’t been much movement in first quarter estimates. In fact, for the full calendar year of 2026, estimates, consensus estimates have actually gone up to the tune of about three percentage points in terms of the growth rate, from about 15% to about 18%. Now, there’s a couple of forces at play in that. There’s two sectors that account for most of those upward revisions to calendar year 2026 numbers. The energy sector, no big surprise there. You’ve seen increases to all four quarters for obvious reasons given the move up in not just oil prices, but prices across the energy spectrum. You had a little bit of a pop in estimates for the material sector, but that’s also kind of a play on commodities. But the big jump has occurred in the technology sector, and that’s largely concentrated actually in just two stocks. Micron and NVIDIA have accounted for a lot of those increases. For the most part, though, analysts have not been making war-specific adjustments to estimates, whether it’s for the first quarter or the remaining quarters in 2026. And I think that’s because it’s hard to try to quantify that. And I think given the proximity to reporting season, which will start in the next week, that’s when I think we’ll start to see some adjustments to estimates, potentially lower estimates in the first half of the year, and that potential for a lift in the second half of the year, assuming the war ends and we see a retreat in energy prices. We don’t know what the end of the war is actually going to look like, and it’s unlikely we’re going to see a rapid retreat in energy prices given the supply disruptions. But for now, the estimate revisions have been to the positive side, not to the negative side.

MARK: Thanks, Liz Ann. Michelle, ‘With the war in Iran, has that changed the optimism of international markets?’ And you more or less addressed that earlier, but this question is also about emerging markets. So could you kind of zoom in on that a little bit, and the impact on those markets?

MICHELLE: Yeah. For emerging markets, earnings estimates continue to rise for very similar reason to what Liz Ann was just talking about on the tech side. If we look at valuations, pretty inexpensive. The MSCI EM Index is down about 10% since the start of the war and estimates continue to rise. So the valuation there for the EM Index is 11 times forward earnings, pretty attractive. And of course, the dollar is also a factor when investing internationally, particularly for these countries that have high imports of energy.

MARK: Thank you. Thank you, Michelle. Mike, this one is for you. ‘Would the Trump accounts appear on FAFSA applications… would the Trump accounts appear on FAFSA applications required to be disclosed and negatively impact a student’s ability to receive financial aid or increase the student aid index? And everything I’ve read is suggesting the individual for which the account is created is defined as the beneficiary.’

MIKE: Yeah. So when I said… when I was talking about Trump accounts, that there’s a lot of details that still have to be worked out, this is one that has not specifically yet been addressed by the Trump administration. There has not been guidance yet. I expect there will be guidance, but just thinking through how the student aid system works, when the child turns 18, this converts to an IRA and becomes the child’s asset at that point. So I would guess that at least the question is that yes, it would be counted as part of the FAFSA and treated as an IRA would be treated under those rules. So I think that’s one of the interesting questions. It’s possible the administration could make a change to that for the college period until the child is 23 or something like that. That’s one of the pieces that we’re waiting for guidance on here. I think the administration is really focused on just getting these accounts up and going first, and will probably fill in some of those details towards the back half of this year as the accounts get settled.

MARK: Thanks, Mike. Liz Ann, ‘Liz Ann, I know you look at sentiment gauges. What are your thoughts on the percentage of equity ownership by households as a long-term indicator of valuation?’ And then I guess maybe as a follow-up there, ‘What are some of the interesting things you’re seeing in some of the other sentiment indicators that you’re tracking?’

LIZ ANN: Yeah. No, we do look at households’ exposure to equities, and can look at, say, forward 10-year returns relative to average 10-year returns. And there’s no question historically when you’re at a higher level of households’ exposure to equities, you tend to have a lower forward return. The last time we had a major, major record hit in that percentage was back in 1999-2000. Sadly, we know what happened thereafter. And we’ve gotten to an even higher level now. That does not suggest imminent doom. It just is part of the reason why most people that look at long-term capital market assumptions and they have a lower than average expected return for equities looking out 10 years, that’s often one of the primary reasons.

The other thing to be mindful of as it relates to high households’ exposure to equities is the feeder that that has into the economy. Another phenomenon in the late 1990s when we had at that time record high exposure to equities was when the bear market began in the beginning of 2000, it ultimately led to a recession in 2001. I actually don’t think we would have had a recession were it not for the bear market in stocks. There weren’t a lot of economic dislocations in 2001. It was just the wealth effect and the contraction in that. So I think it does reflect sort of enthusiastic sentiment.

Last thing I’d say about that, so AAII, American Association of Individual Investors is probably the most common way to gauge sentiment for individual investors. AAII has been doing the survey since the mid 1980s. We have seen a big move up in bearishness and a big move down in bullishness, but not to the kind of extreme we saw, say, during the bear market in 2022. Right now, I think it’s 33% bulls and 51% bears. You got down into the teens percentage of bulls and above 60 in terms of percentage of bears in that 2022 period. But the other thing that’s interesting about this recent move up in bearishness and a move down in bullishness is AAII also tracks the equity exposure of the members that they’re surveying. And that equity exposure has only come down about a percent and a half, 2% from an all time high. So sentiment right now is sort of a story of what they’re saying and what they’re doing are not fully on the same page.

MARK: Thank you, Liz Ann. Collin, this one is for you. ‘With nearly $40 trillion in debt and rising interest rates, and possibly some systemic risks caused by private credit, why is so little attention being paid to these risks?’

COLLIN: Yeah, let me break them out into kind of the two different risks we’re looking at there.

So on the rising debt, for us, it’s a risk that yields can stay elevated and move up a little bit, but not necessarily that it’s going to send yields surging higher, mainly due to the fact that there just hasn’t been a relationship with debt deficits and the level or direction of long-term treasury yields. That’s not saying I endorse that view or not. I’m just saying that’s what the data tells us. Now, we do worry that at some point, given that our debt continues to grow, that there could be a relationship that presents itself and now the markets focus much more on our deficits and rising treasury supply issues and the market starts to reflect that, but we just haven’t found much of a relationship over time. So it’s a reason for us to expect long-term yields to kind of hold in this range and maybe even rise a little bit, but we’re not concerned that our deficit concerns are going to send treasury yields, say, skyrocketing to 6%, 7%, something like that.

Private credit, we do have concerns there, but for now it doesn’t look like it’s a systemic risk. If we look at who holds private credit, they’re made by non-bank financial institutions. And some banks will hold private credit to a degree, but if we look at the assets that banks hold, it’s diversified and that’s one piece of the puzzle right there. Private credit, just looking at it from the lens of what it is, I mean, it’s a risky investment lending to most likely sub-investment-grade borrowers, and that’s a risk. And I think for us, our concern is if it was marketed or sold as something that it isn’t. Is it good or bad? That’s not for us to decide. I mean, if you’re rewarded with higher yields to lend to riskier companies, that might make sense. But I think we’re seeing the potential negative impacts of so much demand flooding to this investment, and now we’re seeing the cyclicality there that everything isn’t always rosy under the surface, and there are risks when you lend to riskier companies. So we’ll probably see defaults stay elevated or pick up to a degree. Does that spill over to the high-yield markets and the bank loan markets? Probably to some degree, but we don’t necessarily think it’s going to spill over to the broad financial system because it looks like for now banks hold a pretty small number.

And then one final point, most of the headlines with private credit are around the redemption limits and gating. And that can be a pro or a con, but you can view it as a pro if the private credit funds aren’t forced to sell because it’s written in the prospectus that they don’t need to redeem everybody at the same time. That doesn’t mean they need to have a fire sale and sell at depressed prices if there aren’t enough buyers out there.

So they’re pros and cons, but we’re not worried right now about systemic risks to the financial system, but there can be spillover risks to the publicly-traded bank loan and high-yield bond markets, and it’s part of the reason why we’re less favorable on bank loans and a little bit more neutral on high-yield while acknowledging what those risks are.

MARK: Thanks. Thanks, Collin. Let’s see, Liz Ann, I’ll give you two questions here. ‘Can you talk about the drop in software stocks under the threat of AI?’ And also, ‘Why has technology been the hardest hit this year?’

LIZ ANN: Well, let me tackle the second part of the question first. Technology is actually not the worst-performing sector this year. That award goes to consumer discretionary and financials. So they’re both down, I think around 9%-and-change year-to-date and the tech sector is down 7% year-to-date.

But now I’ll morph back to the first part of the question. The reason why technology more broadly has been under pressure and certainly software is because of the AI disruption story. So I’ve been writing about for quite some time what I’ve called the three Cs in terms of phases of AI. We had the create phase, which was the early phase starting in 2022, creation of ChatGPT and other LLM models. Then we had the sort of cultivate phase where you saw the build out of data centers and the energy needs associated with that. So it was sort of a broader phase. And then we’ve been in this cascade phase, which has been a combination of, okay, what industries, what companies are beneficiaries of the AI revolution and where is the disruption happening? And concern that a lot of what the software as a service, or SAS, stocks offer could be disrupted by the advancements in AI. And then that fed on itself and shorting kicked in. So a lot of this positioning stuff can exacerbate a move in certain segments of the market beyond what even deteriorating fundamentals might suggest. So you develop this big spread between the performance of the software part of the tech sector and much stronger semiconductor part of the tech sector, much of which has been kind of overshadowed in the past five weeks by what has been going on with the war. But that had been the big part of the story. They were seen as the biggest industry that was being disrupted by AI.

MARK: Thanks, Liz Ann. Okay, last question here, a question for everybody, and we’ll start with you first, Collin. What is the one thing you want listeners and viewers to take away from your comments today in 60 seconds or less?

COLLIN: I actually haven’t mentioned it, but the idea of portfolio diversification, because that’s been a common question we’ve been getting since the war began. We’ve seen equity prices down and treasury yields up, pulling the values of most bond investments down. But we like to point out that when you hold bond investments, you need to hold them for a long period of time to earn that income. So we’re only five or six weeks in right now, so it’s a very short, small snapshot into a performance that you really need to hold for 12 months to get that income. And if you look at what the performance has been since the end of February to as of yesterday’s close, the declines are relatively small if you look at broad fixed income indices. The magnitude of any potential drop is relatively limited.

So we still think the power of diversification is still alive and well, and we still think bonds, even though the values have come down a little bit, we think yields are still pretty attractive right now. And as we highlighted before, we’re not suggesting take too much risk, maybe favor preferred securities, but other than that, we think high-quality intermediate-term bonds are a nice balance of risk and reward given such an uncertain outlook right now.

MARK: Thanks, Collin. Liz Ann, what is your one takeaway?

LIZ ANN: Well, I’ll take a page out of Collin’s book and answer it, Mark, a little bit more broadly, as opposed to specific things that I might have said throughout the course of this call. And it ties into a report that I have getting published tomorrow about the differentiation between gambling, whether it’s sports gambling or betting markets gambling, and investing. And I’ll tie it back to a more common question I’ve gotten in the last five weeks because of uncertainty with regard to the war, questions around should I get in or should I get out, or when should I get out, or when should I get in? And I get questions like that a lot, especially when you go through a more volatile period in the market. And my response is always neither get in nor get out is an investing strategy. That’s just gambling not just on one moment in time, but gambling on two moments in time. You need to be right both times, and that’s virtually impossible to do with any kind of consistency. And I like to remind investors, and it ties into the comments Collin made about diversification and other disciplines like rebalancing, investing should be a disciplined process over time, never about any one particular moment in time.

So for those interested in that whole topic of gambling and betting markets versus investing, the report comes out at some point tomorrow in the public domain on schwab.com on the Learn tab. So keep an eye out for that.

MARK: Thanks, Liz Ann. Michelle, what is your one takeaway?

MICHELLE: Well, I’m going to reiterate the diversification theme and longer-term perspective. Yes, in the near-term, the economic and earnings acceleration that we expected for international stocks has been delayed, but they still provide a diversification benefit to US stocks. Over time, we expect growth to move in cycles. And once this energy disruption is over, the easing of the shock could result in a reacceleration of growth from a lower base. International stocks are attractively valued, and a resumption of dollar weakness could boost returns.

MARK: And Mike, we’ll give you the last one.

MIKE: Well, I think I would just say that Washington is in a confusing space right now. It seems very dysfunctional. You look at the Homeland Security shutdown. You’re looking at difficult votes coming on funding the war. But to me, the things that actually are mattering to investors, to the end investor, are some of these regulatory things I mentioned, Trump accounts coming online, new rules potentially around what can be in a 401(k) plan. I think those are the types of things. We’ve got others around cryptocurrency coming down the pike. We’ve got things around public company disclosure and what information investors get from public companies that is going to be an SEC proposal. So there’s a number of things coming down from the regulatory side that I think really matter to the end investor. And those are things that are worth being up to speed on because I think those conversations are going to start from investors in the coming months.

MARK: Thanks, Mike. And we are done here. If you would like to revisit this webcast, we’ll be sending a follow-up email with a replay link. To get CE credit, you need to watch for a minimum of 50 minutes, and you must have watched it live. Watching the replay doesn’t count. To get CFP credit, please make sure to enter your CFP ID Number in the window that should be on your screen right now, and then Schwab will submit that on your behalf to the CFP Board. For CIMA credit, you’ll have to submit that on your own. Directions for submitting it can be found in the CIMA widget at the bottom of your screen. And we’ve got one more option, it’s called the Certificate of Attendance Widget, and that is also at the bottom of your screen in the widget dock.

Our next webcast will be April 21^st. That’s a fixed income focused webcast. The speakers will be Collin Martin, Cooper Howard, our muni strategist, and Ken Pennington, who is our alternative strategist. And the next webcast in this form will be on May 5^th. Liz Ann, Collin, and Michelle will be back, along with Jim Ferraioli. Until then, if you would like to learn more about Schwab’s insights or further information, please reach out to your Schwab representative. Thanks again, and have a nice day.

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