MARK RIEPE: Welcome to Schwab Market Talk, and thanks for your time. It’s September 1^st, 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 every month, and we’ll start by having each panelist and I talk through a few top themes that are on their mind for the first 30 minutes or so, and then we’ll start opening up to live questions. If you would like to ask a question, you can do that at any time. Just type the question into the Q&A box on your screen, and then click submit, and we’ll answer as many of those 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. You aren’t eligible for any CE credit if you only watch the replay. To get CFP credit, you can just 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 50 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 Certificate of Attendance widget. You can find that 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 that you attended the webcast today. Finally, I’d like to highlight a couple of helpful resources in the webcast console. In the top right-hand corner, you’ll find a link to a client approved chart on potential fixed income alternatives to cash. And in the bottom right corner, you’ll find additional materials, including a link to our latest market commentary. 

Our speakers today are Liz Ann Sonders, our Chief Investment Strategist; Collin Martin, our Head of Fixed Income Research and Strategy; Michelle Gibley, Director of International Equity Research and Strategy; and Jim Ferraioli, Director of Digital Currency Research and Strategy. 

And Liz Ann, why don’t we start with you? The bond market has actually become arguably a source of risk to the stock market these days. At what level of treasury yields do you start to think about maybe changing your outlook for either the stock market or the economy overall? 

LIZ ANN SONDERS: So thanks, Mark, and hi, everybody. I’m not sure I think of it purely in level terms. I think level comes into play as it relates to the breach now back above 4.75. I think it’s part of the reason why on a day like today, you have some weakness in the market. We saw the recent bottom in late June, and we had both June and July were down months for the S&P. So the move up has already had some impact. 

I think it’s the fact that it’s been fairly orderly is why the impact hasn’t been more significant. I think speed is a factor too, not to mention the fact that if you look at nominal GDP, if you look at the rate of inflation, in my mind, what the move up in yields represents is a combination of normalization relative to nominal growth, normalization relative to inflation. And then, and Collin can talk with more specificity and intelligence on this, but term premium, and the desire on the part of treasury investors to get a higher yield for the risk that they’re taking related to things like fiscal profligacy and ongoing concerns about inflation. 

So I think it’s speed that matters. I think the next psychological point is probably 5%, but I think the most important thing for investors as it relates to the relationship between bond yields and stock prices is we’re back in inverse correlation territory between the 10-year yield and stock prices. I think we’re likely to stay for the most part in that kind of environment. And that’s very different from the great moderation era that went from the late 1990s up until the 2022 inflation spike. During that, almost that entire span, bond yields and stock prices were positively correlated. And what’s important is the why. During that 20-plus year era, bond yields were keying more off the growth, the economic growth side of the equation, less off the inflation side of the equation because we didn’t have a lot of inflation volatility or a big inflation problem during that period of time. So higher yields was typically because of higher growth. Without the attendant risk of or concern about inflation, that’s nirvana for equities, vice versa when yields were moving down. But if you go to the 30 years that predated the great moderation, so mid 60s to mid to late 90s, that 30-plus year period, bond yields and stock prices moved in the opposite direction because bond yields were keying more off the inflation side of the equation. So higher inflation without necessarily improving growth, that was negative for equities, and vice versa. So I think that is what we really should be thinking about in more secular terms, the implications of us now being back in this negative correlation territory, and that connectivity between the bond market and the stock market that I think for the most part is likely to persist. 

MARK: Liz Ann, I want to talk a little bit about company earnings. Companies have, frankly, been delivering pretty strong earnings results, but expectations are starting to be raised on the part of analysts with lots of upward revisions. Shouldn’t that be something that investors should be worried about? 

LIZ ANN: Well, not necessarily. I mean, second quarter earnings growth season was absolutely gangbusters. We still have a straggler number of companies that haven’t yet reported, but we’re looking at pretty comfortably above 50% earnings growth for the second quarter, more than double what the expectation was before reporting season began. At some point you have base effects that kick in where you’re just not likely to continue to repeat those kind of eye-popping numbers. But the outperformance was so significant it did force analysts to up estimates. We will get to a point where you might have the expectations bar have gotten set a little bit too high. And to some degree, Mark, we’ve actually seen it at times with the individual stocks that are reporting. And I’d actually go back, and Michelle might talk about this in a little more detail, but when Samsung reported its earning, that became kind of the poster child for a company reporting better than expected earnings, and then expected was driven by the sell side consensus estimate for the company. But they undershot what I’ve been calling the buy side expectations, the higher bar, the whisper number. And that caused a rout in the stock which led to a rout in the KOSPI. And we really started to see a bit of a waterfall there just driven by one company. I think we’re starting to see that at times. We’re seeing more dispersion in terms of how companies are reacting to reports that maybe undershoot expectations, but it hasn’t yet been an aggregate problem. The good news is that 10 out of the 11 S&P sectors have seen improving estimates, not just for the most recent quarter, but into year end. 

The rub is that earnings are still very concentrated. So if you just take Nvidia, and you look at S&P 500 expected earnings growth this year relative to last year, Nvidia represents 18% of that earnings growth. If you add Micron into the mix, that’s another 14%. That equates to 32%, which basically means a third of all the expected jump in earnings is coming from those two stocks. If you go out the top 10 highest earning companies, it accounts for two-thirds of S&P earnings. So from a cap perspective, we have serious earnings concentration. Even though there’s been a broadening out of improving earnings, the power is still dominated by some of those mega-cap names, and that is something to be mindful of in an environment where the expectation. 

So I expect it to be a volatility driver and hit individual stocks. I don’t yet worry that we have some imminent problem of just estimates having gotten way too outside what should be expected. 

MARK: So Liz Ann, you brought up some of these mega-cap names. Many of those are tech companies. I’m looking at a number here that shows their projected spending on AI is expected to be in the range of $700- to $800 billion in 2026. That’s actually surpassing some of these big traditional sectors like oil and gas. So what evidence do you see now that these investments… are we at the point that they’re going to start materializing into profits and productivity across the entire economy? 

LIZ ANN: Well, we’re at the phase where those are the questions that are being asked. It was certainly a big part of the conference calls during second quarter reporting season is how can you quantify the benefits of the spend? How much further can the spend go before we run into constraints as it relates to supply chains, as it relates to the cost of building out, and purchasing compute? So we’re starting to see a little bit more of that nitty-gritty analysis, and even of the users of the AI at the company level, a lot more detailed questions. Are you actually seeing the productivity benefits? Does the spend continue to be worth it either from a productivity or a profit margin perspective? So I think we’re there. We’re in that what we’ve been calling this cascade phase as AI gets cascaded through the economy, and trying to put some actual figures on the productivity numbers, which you can only now indirectly tie where productivity is with AI. There’s not really a direct tie that can quantify AI’s impact there. I’ve seen CapEx estimate numbers, Mark, that even hit a trillion for 2026. That’s how sharp the upward trajectory is. And I do worry about the supply side. 

The other interesting thing as it relates to the AI CapEx boom and its impact on the economy is we are seeing strong double-digit gains in the line item within GDP that is non-residential fixed investment. That’s the business capital spending line item in GDP. But there’s another interesting component of that that ends up acting as a slight drag on GDP, which surprises a lot of people. And that is that a lot of what is the money that’s being spent in this CapEx boom is on imports. A lot of what we’re spending on is imported products. And the trade-related line item in GDP is broken out between imports and exports. As a country, we import more than we export. So if we’re importing more, which part of the AI CapEx is more of an import story, then we are offsetting with our exports. That accrues to the downside in terms of GDP. So in a recent past couple of quarters where you have this booming resident… or non-residential fixed investment, you end up seeing trade acting as a drag, not an offsetting drag, but a little bit of a drag because of that import-export relationship. And that’s something I find not a lot of people are aware of. So that’s just sort of the math and mechanics of how economic growth is calculated. 

MARK: Thanks, Liz Ann. Collin, let’s go to you. A big week for the Federal… at least last week was… Federal Reserve Chair Kevin Warsh. He was delivering his keynote speech at the Central Bank conclave there in Jackson Hole. What were some of your biggest takeaways from his presentation, and did anything he say change your outlook in terms of where we think interest rates are going for the rest of the year? 

COLLIN MARTIN: Yeah. Well, our outlook is shifting a little bit. So prior to the speech, we were of the view that the Fed would remain on hold through the end of the year, waiting for incoming data to kind of convince them that they needed to do something. We’ve been acknowledging that it’s a pretty low convection view because there is the risk potential of a hike later this year, and I’d say that risk has increased following the speech last week. It was certainly a more hawkish speech than I was expecting. I think it was more hawkish than a lot of the market participants were expecting. We saw that with the market reaction with fewer treasury yields rising relatively sharply. We finally heard from Kevin Warsh, you know, really what his economic outlook is. He didn’t provide forward guidance. He didn’t provide what his reaction function is, meaning what he needs to do to address what’s happening with the economy. But we got a clear view that the economy is strong. He said he’s impressed by how it’s been behaving lately. The labor market is doing okay. And inflation is just too high. And this is the point he was making, which did, I think, support the more hawkish case where he sort of downplayed the June and July inflation readings, which we and the markets have generally… given us kind of a breadth of relief that maybe it wouldn’t push the Fed to necessarily react. He kind of downplayed those, and said that the underlying drivers of inflation haven’t really changed too much. The trend is still too high. And instead of looking at the actual year-over-year numbers or three-month or six-month annualized, he focused on kind of the sub-indexes and the percent of all these different types of baskets that were rising at a 3%-plus level. And he highlighted that they’re still just too high. 

There were a few things that stood out to me. He actually said pretty clearly that it doesn’t seem […audio dropout…] right now. But he also made the point that the market prices suggest that the committee will get inflation down. And then he said, ‘I can assure you they’re right.’ So if we think about what Warsh has said over the past few months, and if he’s saying that the markets are right, that they’ll get inflation down, that to me suggests Warsh is ready to act, and that he’ll do something. Because he’s made it clear inflation is not down because of the way the pre-Warsh committee has at. And he actually had a couple points in his speech kind of blaming previous iterations of the Fed for why inflation is so high. So if he does nothing and inflation does get to target, then he was saying that the old committee was wrong, when, in fact, it proved to be somewhat prescient. 

So it was certainly more hawkish, Mark. We do think he left some sort of optionality in there. Incoming data still does matter. We’re seeing that with the Fed Funds Futures Market. It looks like there’s about a 65% implied probability of a rate hike in September. A rate hike by the end of the year is fully priced in right now. We’re getting closer, but we do think the incoming data matters. And if we do start to see softer inflation readings of, say, 0.2% or less on a monthly basis, that might allow the Fed to remain on hold, but we’ll have to see how that data comes in. 

MARK: But Collin, now we’ve got another player in the treasury market given recent steps by the Treasury, the US Treasury to improve liquidity, making larger buybacks of treasury bonds. So how meaningful are these measures? Do you think they can relieve pressure on the long end of the yield curve? And I guess second part of that question, what are some of the risks of this intervention, and does it lead to sort of an artificial suppression of where maybe yields would be if market forces were just let to do what they’re going to do? 

COLLIN: Yeah, we don’t think the moves for now are too meaningful. So the boost in the liquidity buyback operations that Bessent announced, where they were previously doing operations of around 2 billion, he said they’re going to at least double, so at least 4 billion per operation going forward. The treasury market is really large, and I think it’s kind of a drop in the bucket with these liquidity operation that he’s embarking on. So we don’t think it’s necessarily going to fix what we’re seeing with treasury yields, but more importantly, I don’t know if there’s anything that needs to be fixed right now. Liz Ann alluded to this before, and there’s a number of reasons why treasury yields are where they are right now. Liz Ann mentioned nominal growth. It’s still high. If we look at the change in the long-term yields, specifically the 10-year yield year-to-date, most of the change is due to the expected change of short-term rates. So really just the hawkish Fed bias. It’s actually not driven by a higher term premium, which is where you would start to see fiscal concerns play in. It’s really not driven by higher inflation expectations, maybe a little bit, but not a ton. It’s mostly driven by higher expected short-term interest rate. 

I think the best way I can describe it is if we’re seeing a Fed funds rate that’s at 3-1/2- to 3-3/4% right now, that’s you could argue neutral or maybe even accommodative, building on what Warsh was talking about, and a resilient economy, a growing economy pretty close to trend, high nominal growth, labor market that’s cooling, not deteriorating, you should see a positively sloped yield curve. And if you look at the gap between the 10-year and the Fed Funds Rate of around 100 basis points, it’s actually below its long-term average. The two-year, 30-year slope is actually below its long-term average as well. So it’s really just indicative, in my view, of economic fundamentals right now, and not necessarily something that Secretary Bessent needs to be fixing. 

Now, obviously the headline of 5% plus 30-year yields, they seem high because they’re at the high end of their, you know, 16 or […audio dropout…]. They’re not that high. 

To the second part of your question, Mark, what are the risks here? I do think there could be a credibility risk, but I say could because I don’t think we’re there just yet. In his capacity, Bessent is treasury secretary, and it’s in his purview to manage our treasury debt as he sees fit, just like we can manage our mortgage rates, or how we want to borrow to do a home improvement, or anything we want to do in our personal lives. He can do that by boosting his liquidity buyback programs. He can do that by changing the issuance trends by maybe reducing long-term coupon issuance and boosting treasury bill issuance. But the risk is if what the markets want to be predictable turns out to be unpredictable because investors, the markets want a predictable treasury market. And if it looks like there’s too much interference or if it looks like we’re losing that predictable nature, investors might start to demand higher yields to compensate for that unpredictability. So that’s a risk. I don’t think we’re there right now, but we’ll have to see how it plays out, and that would be a risk to higher long-term yields. 

MARK: Last question for you, Collin. Credit spreads are historically tight. Do you think that’s appropriately reflecting the strength of the economy and some of the factors Liz Ann was talking about, or do you think it’s a sign of complacency? 

COLLIN: I think it’s a sign of a strong economy, and not too much a sign of complacency because we’re seeing some… we’re seeing some cracks here and there. The markets are differentiating within the credit markets of what might be attractive or where there might be risks, and they’re sniffing that out. I think it is, though, due to the strong economy, and really the state of corporate fundamentals. Liz Ann was talking about equity earnings. If we look at a big picture look at corporate profits, so last week in the second release of the GDP report, we got to look at second quarter corporate profits. They rose very sharply to 4.35 trillion. That was up over 9% on a quarter-over-quarter basis. It was up 22% on a year-over-year basis. That’s a good thing for corporations. Now, it’s one number and not indicative of all corporations of course, but companies are making money, and if they have relatively strong balance sheets, which we think they still do, that’s why investors are okay lending at low spreads. 

But I mentioned that there are some cracks forming here and there. We’re seeing a little bit of that in the investment-grade market where we’re seeing tech spreads rise a little bit relative to the broad investment-grade index due to all the hyperscaler issuance, the supply and demand, which so far seems to be in balance, but that’s a risk down the road. If they continue to issue these large amounts, will there be enough demand to absorb that? Year-to-date, we’ve seen tech spreads rise, where the average spread of the broad index is actually flat. If we look at the high-yield market, we are seeing differentiation. So year-to-date, if we look at the Bloomberg US Corporate High-Yield Bond Index, double-B and single-B spreads are both down more than 10 basis points each. And then triple-C spreads, you know, are the lowest rungs of the high-yield market, they’re up over 200 basis points. So investors are differentiated. They’re okay lending to kind of the higher and middle tiers of junk, but a little bit more dubious of the lowest rungs. But even with that spread increase with triple-Cs, the triple-C index has delivered positive total returns year-to-date because of the high-yield they offer. 

So that’s a really key thing to consider, whether it’s investment-grade credit, whether it’s high-yield credit, because we have yields higher than what we saw for a number of years, that does provide more of a cushion in case spreads rise a little bit. So we do continue to have a more favorable view on investment-grade corporates and high-yield corporates. We acknowledge that there could be some volatility […audio dropout…] generally strong, and the all-in yields appear pretty attractive. 

MARK: All right. Thank you, Collin. 

And we will switch to Michelle to talk a little bit about international equities. Done pretty well over the last couple years. So I have a two-part question for you. For an advisor whose clients have been tilted, heavily tilted maybe towards US stocks for years, what is your strongest argument for increasing international exposure right now? And then what are some of the different opportunities that make sense for you? 

MICHELLE GIBLEY: Yeah, US stocks really outperformed for the most part of the last 15 years, and typically investors have a home bias that’s here in the US and globally. Investors are probably overweight the US. Adding international almost always provides diversification benefits, both in terms of end markets, sectors, and currencies, but it’s really important now due to the concentration of AI-related earnings in the US equity market. And actually globally, AI is the dominant growth driver for earnings growth. The tech sector alone contributes 55% of this year’s projected earnings growth for MSCI ACWI. Of course, we know that’s not just tech. There are also some AI-related companies in industrials. But this concentration risk, it’s really more evident, not just in the US, but also in Japan and emerging markets. This increases the importance of finding non-correlated investments. And so you can broaden out by sector, including healthcare, staples, energy, and materials, but also Europe. Europe is less correlated to the AI CapEx boom. The MSCI Europe ex UK index only has an 11-1/2% weight in tech, and that’s relative to 35%... 37% in the S&P. 

We hear a lot of negativity about Europe, including now about China’s negative impact on Europe. But I think this is pretty well known and overstated, and probably discounted in the stocks. And if we look at earnings, Europe’s earnings drivers are really much broader than the industries facing competition from China. There’s large weights in financials, industrials, and healthcare. Those three sectors are roughly half of the index. If you look at just the automotive companies, the ones really seeing a lot of Chinese competition, they’re only 1% of market cap. And then if we look at the economy in Europe, despite being vulnerable to the energy supply shock from the Iran war, economic data is actually surprising to the upside. Earnings also doing quite well. The impact of higher energy prices has had actually a stronger positive impact than negative impact on the index, and we’re seeing earnings being revised higher across a broad range of sectors. In fact, if we look by sector, energy, basic materials, utilities and chemicals and financials are all benefiting from higher inflation. And really the only clear losers are the consumer discretionary stocks, which are 6% of the index. 

Europe’s banks are also doing quite well. They’re outperforming US banks, both in terms of return on equity and stock returns, and they’re actually less expensively valued. There are risks, though, of course. The longer we see energy supply disrupted, the negative impacts may broaden. Natural gas inventories are below average heading into the fall. Additionally, next year we have several general elections that could cause market volatility. I’ll point out France, in particular, a potential flashpoint heading into its April- May election. And then longer term growth in Europe may struggle due to slow progress on structural reforms. But I love something that Liz Ann likes to say. Better or worse matters more than good or bad, and for Europe right now, things are looking better. 

MARK: Thanks, Michelle. The return for emerging market equities was double that of the S&P in the first half of the year, but since then they’ve struggled a little bit. So how are you thinking about emerging markets going forward? 

MICHELLE: Yeah, emerging markets have transformed away from a commodity story and into a tech one. Tech now represents 42% of the index, and similar to the US over the last nine months, the main driver has been increasingly the AI CapEx boom, and the earnings are actually exploding higher. For the next 12 months for the EM Index, the expectation by analysts on the street is 70% growth. But it’s really very focused in three chip companies. TSMC is 15% of the index. They manufacture a broad range of end uses, including AI, but it’s really those two large Korean companies, Samsung and SK Hynix that are driving things. They’re the swing factor. They are just 13% of the market cap, but represent more than half of the overall earnings growth expected for the index. And this is really a supply constraint situation that’s resulting in increased average selling prices. Gross margins there are now mid 80%. And these are generally considered commodities, and that’s similar to software-type gross margins. And they’re starting to add… make plans to add capacity. So in order for chip prices not to fall, demand growth really needs to continue to outweigh supply growth. In the past, memory companies have really been boom-bust businesses that make them difficult to hold longer term. Of course, we had some air come out in July after new questions about competition from China, and as Liz Ann mentioned earlier, earnings were strong, but maybe not strong enough relative to expectations. But there’s so much riding on these three chip companies, particularly the memory names. And so how earnings expectations evolve over the next six to 12 months is really not very clear. 

So for us, we’re saying stay invested in EM. Earnings growth can continue to stay healthy, and valuations are reasonable, but the risks have increased, and the asset class could remain volatile in coming months. 

MARK: Thanks, Michelle. 

I got a couple questions for you, Jim, and then we’ll start taking some of the live questions that have been submitted. Jim, you’re normally here to talk about Bitcoin, but you’re also our commodity strategist. And the debasement trade has come back into the market’s lexicon here following the treasury’s intervention in the bond market. So do you expect this to support gold prices going forward? And I guess more generally, how do you think about gold’s role in a portfolio? 

JIM FERRAIOLI: So gold has been on a great run for the past few years. From fall 2022 to its peak last year, it actually returned about 250%. And so as you mentioned, the debasement trade is back in the news. Just a few weeks, the treasury secretary made announcements that they were intending to double the size of their treasury buybacks. And so that really sparked some life back into that trade after it actually corrected earlier in the year. If you recall, when it was announced that Chairman Warsh was going to be the nominee for the Fed chair and the market perceived that he was going to be more hawkish, that’s what actually set the gold rally for the past few years into correction. And so we’ve had a bit of a correction there, and we’re starting to hear that debasement trade narrative again. 

Now, following Friday’s keynote speech by Chairman Warsh, again, these debasement trades kind of took a bit of a breather as it was much more hawkish than I think the market perceived. But fundamentally, we’re $40 trillion in debt. And even if we’re rising interest rates, that’s really not addressing what is the big picture thing that’s driving the debasement narrative, and that’s the persistent budget deficits. And so from that perspective, we think fundamentally the gold trade, the debasement trade, could have more legs to it. I’m not trying to be overly tactical here, but we do think it is supported. 

From a portfolio perspective, gold is typically a low correlation asset. And so kind of putting on my cryptocurrency hat as well, we think about Bitcoin as similar to gold in that sense. If you think of these two assets, gold is supply-constrained. Whether there’s very strong demand or limited demand at that time, above ground resources of gold grow about 2% a year. So it’s very difficult to quickly ramp up production of gold. Bitcoin supply is pre-programmed. If you want more Bitcoin, you can’t get it out. 

And so that’s the narrative where people talk about debasement with these two trades where they have in common. And so we think that these are two low correlation assets to other assets in your portfolio, and they can complement your broader portfolio. Now they’re both volatile. Gold typically is seen as a defensive trade, but that’s not always the case. And earlier this year was a good example. As equity markets were taking a breather at the onset of the Iran conflict, gold was also selling off as well, but from a different reason. And so that’s why I want to make it clear. Gold isn’t always a defensive trade. It’s volatile, which is not typically a feature of defensive asset classes. Bitcoin, on the other hand, is generally not ever a defensive trade. This is an offensive trade. And so if you’re thinking of the Bitcoin digital gold versus actual gold, within their portfolio and themselves, they do also provide kind of different exposures. 

MARK: Thanks, Jim. Not all commodities are created equal, and different commodities are sending different signals about the economy and market. So some prices are reflecting stronger demand, others are really about geopolitical risk and supply constraints. So what is the commodities market telling you about the outlook for the economy and inflation? 

JIM: So the big kind of four areas that we follow there are precious metals, industrial metals, energy, and agricultural commodities. And first, commodities broadly are doing quite well. We’re in a period of higher nominal GDP growth, which has typically been an environment that’s supportive for commodities broadly. On the industrial metal side, that’s really as a result of demand. We’re seeing a lot of CapEx demand from things like reindustrialization and AI CapEx. And so that’s what’s adding to demand there. On the energy side, it’s more of a supply constraint. We know there’s conflict in the Middle East, and so that’s impacting prices there. Agricultural tends to be more crop-specific and weather-related, but again, agricultural commodities are still seeing prices supported here. And finally, you have precious metals which are supported by the debasement narrative. 

And so all of these are relatively supportive for commodities, but what it tells me is that the economy is growing. We are seeing manufacturing PMIs. They are in expansion. We just got the latest reading today. We are seeing demand for industrial activity. That tends to be a sign of a growing economy. So it’s a positive, but there are also imbalances as well. And so what that tells us is that commodities remain attractive here, and that inflation is also likely to remain an issue as long as commodities are rising in prices. 

MARK: Thank you, Jim. 

So let’s start taking some live questions, and Liz Ann, let’s go to you with this one. ‘Liz Ann, interesting comment about the drag on GDP because of AI imports. Does this mean GDP is actually higher if we ignore the impact from AI imports? And if GDP is higher, where is the growth coming from?’

LIZ ANN: Well, it is a little bit of a drag, but it’s only about a 1% drag. So you still have very strong growth in non-residential fixed investment. I think the growth rate there was about 8- or 9%. Imports did have double-digit growth, but again, netted against weaker exports, that acts as a slight drag, but it’s a 1% drag. Strength elsewhere was… I think you had about 3-1/2% growth in consumer spending. That’s not a huge number, but that’s 69-1/2% of GDP. So the multiplier there means it’s a big weight. The most meaningful drag in terms of GDP, other than that import-export relationship was federal government spending. That was, I think, a negative 4% for the second quarter most recent update. So that’s kind of a further breakdown of what is kind of riding high and what is riding a bit lower. 

MARK: Thanks, Liz Ann. 

Collin, this one is for you. ‘Are core bond strategies doomed to another year of poor performance?’ 

COLLIN: That’s a good question. Are core strategies doomed for another year of poor performance? I guess we’d have to define what we mean by doomed. Right now, year-to-date, I have some returns up here that the US Ag is down 0.3% through yesterday’s close. Assuming no change in rates through year-end, with some coupon income, you could earn a positive total return. But it depends on the direction of interest rates, of course, and there is an upside bias to yields, both short and long right now. So when we look at our, call it six-month view, we think coupon income you want to consider, but probably very little price appreciation. That’s kind of how we’re framing it right now. 

In terms of how it’s performed over the past few years, the good news is it’s done okay. The past three years we’ve seen positive returns from the Ag, some better than others, but in two of the three years, the year-end total return was better than the starting yield. So that’s a good thing. I’d say, though, for the next, call it six months or so, we think that income is likely to be the key driver of total return, as opposed to… just to kind of tie it in with our big picture interest rate outlook, with a hawkish Fed, and with all the factors that we’re seeing drive or keep long-term yields elevated, they’re still very much present right […audio dropout…] inflation, but I think inflation uncertainty is a key driver. Fiscal concerns aren’t going away anytime soon. Global bond yields are all rising. There’s more upside risks than downside risks. 

So again, from a total return performance, coupon income, as opposed to much price appreciation over the near term. But it’s important to look at the yields offered. And if you have a longer timeframe, and you want to focus more on intermediate-term maturities, we think the yields offered today are still very attractive from a strategic standpoint. From a tactical standpoint, it doesn’t look like we’ll get much price appreciation, or we’re not expecting much price appreciation over the next six months or so. 

MARK: Thanks, Collin. 

‘Michelle, what do you think about Canada? Is there a good way to invest in Canada either through an index or a thematic ETF?’ 

MICHELLE: So there are Canada-specific ETFs. I would say that Canada is really a very focused story in terms of sectors. Almost 40% of the index is financials. Another 35% is energy and materials. So combined, that’s 72% of the index in those three sectors. So you need to have a positive outlook on those. I just looked up after seeing this question, the financials. They look like they might be rolling over a little bit. I think the collapse of the trade talks between the US and Canada was a negative, and there’s a potential hit to GDP, maybe not a big one, but Oxford Economics had estimated a 0.3% negative impact to next year’s GDP. Right now, the Bloomberg consensus is 1.7%. And so the Bank of Canada meets tomorrow. They’re likely to remain on hold. So there is a little bit of GDP impact here, and if the yield curve flattens out, that could maybe be not so great for financials. 

MARK: Thank you. Thank you, Michelle. 

Jim, this one is for you. Bitcoin has at times traded on kind of macroeconomic forces, but I think a lot of the recent upturn has been more regulatory in nature. So how do you think about the collection of drivers that influence Bitcoin’s direction? 

JIM: So over the long term, I’m saying on a four- or five-year period, Bitcoin tends to have a low correlation to macro factors and other asset classes. In shorter timeframes, it does get impacted by these things. And so that’s something we watch closely. If we look a year ago at a very high correlation to tech stocks, but recently its correlation with gold has really increased, and it’s actually had a negative correlation with tech stocks. And so using that as some evidence, and then seeing how macro factors have been impacting it, lately the dollar and real yields have had a bit of a more impact as well. So if it’s trading similar to that debasement trade, digital gold narrative, it tends to be impacted by more of the things in the short term that something like gold would be impacted on. 

And so that’s how we think about it. The tricky thing with cryptocurrencies, specifically Bitcoin, is tracking their correlations, and how macro factors are impacting them because often they change over time. And so those are the things that we’ve been tracking lately, though. 

MARK: Thank you, Jim. 

Let’s go to Liz Ann here for this one. I lost the question here. Here we go. ‘What is this morning’s JOLTS data tell us about the state of the labor market?’ 

LIZ ANN: It wasn’t really a compelling read in one direction or another. The actual job openings, the initial reported headline was a bit of an uptick, which on the surface would seem to be a good thing, more job openings. But the only reason why it was an uptick was because the prior month was revised down. So that was a base effect. I would also say that… keep in mind that the JOLTS data lags by a month all other labor market data. So it’s a month earlier than, for instance, what we’ll get on Friday with the Jobs Report. You also saw a downtick both in the quits rate and the hires rate. So a little bit less hiring, fewer people quitting. Typically, when the quits rate goes up, it’s suggestive of people feeling confident in the labor market, and therefore they voluntarily quit their job, and that’s a sign of a feeling of health in the labor market. So a little bit of the same thing, low hiring, low firing, not a huge needle-mover. The more important report is coming on Friday. 

MARK: Thank you. Thank you, Liz Ann. 

Collin, ‘Will higher debt issuance by tech companies make the Federal Reserve interest rate policy tool more powerful in moving the level of economic activity?’ 

COLLIN: Yeah, it’s a really good question. I’m not sure. So the Fed can control short-term interest rates, and then intermediate- and long-term interest rates are more indirectly impacted, and they’re driven by a number of things including long-term growth and inflation expectations. A lot of these tech issuers is not necessarily short-term issuance. We’re seeing them spread their issuance across the curve. So they might be impacted more by long-term interest rates than what we’re seeing with the Fed. 

More importantly, though, the level of rates… or the borrowing costs rather, don’t seem to be bothering a lot of these big tech issuers. They’re issuing regardless of what the borrowing costs are because their plans are so big and they need capital to finance those plans. So I think the market or investors will be more important in kind of driving what that looks like over time than Fed policy itself because most of their issuance is intermediate- and longer-term. And what I mean by that is investors potentially demanding higher spreads. So far, the increase in spreads has been marginal, and that’s okay for most of these issuers. They continue to issue. Again, I said that they’re not really scared of the yields they’re seeing. We need to see yields probably move a little bit higher to see how these companies are dealing with those higher borrowing costs, and what that means over these long time horizons. 

MARK: Thanks, Collin. 

Michelle, ‘If looking to invest cash, is it a good time for international given Trump’s continuing war with Iran and tariffs?’ 

MICHELLE: Yeah, I would say that… you know, there were a lot of concerns about tariffs last year when they came out on Liberation Day, but really the headline rates initially were much higher than what were realized. And also there’s been some interesting facts about CapEx, where there was a concern that business sentiment would be weakened, and therefore CapEx would be held back. But instead what we saw is the AI build-out really resulting in a boom in CapEx. And countries that are supplying components and machinery to that boom are benefiting. Japan, Korea, we talked about that, and China as well. And we’re seeing the trade deficit, as Liz Ann was mentioning, really quite strong because we’re getting all these imports from these other companies elsewhere. And so it really hasn’t changed the investment case for any major stock market, but it does represent a shift away from globalization due to geopolitical fracturing or a weakening of global interconnectedness. And this could result in a shift away from dollar-denominated assets just kind of on the margin as investors hedge dollar exposure or find ways to transact in currencies other than the dollar. 

And in terms of tariffs and trade, I’d also pay attention to President Xi, China’s President Xi’s visit to the US on September 24^th. And we have these sanctions on Iran, but we really haven’t seen any Chinese banks hit yet. And I think behind the scenes, we’re going to see a negotiation here, where China’s unlikely to comply without the US making concessions elsewhere. 

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

Let me pull up a couple questions here. I guess we’ll merge these together, Liz Ann. ‘When will the $40 trillion debt servicing, federal debt servicing, become a problem for the equity markets?’ And then the second part of that is, ‘With the US debt at over $40 trillion, is it realistic to grow our way out of this spot as some suggest is possible?’ 

LIZ ANN: So when will it become a problem for equities? There’s so many forces that impact equities, and trying to pinpoint one particular thing is difficult. But we already talked earlier in the show, Mark, about the feeders between the bond market to the stock market in terms of not just the move up in yields, but also volatility associated with that. And part of that story is related to fiscal profligacy, and the high and ever rising burden of debt and deficits. So you could argue we’re in a moment right now where it matters more than maybe it has in the past. 

In terms of impact on the economy, it also matters now. We’re looking at about $1.2 trillion for 2026 in interest expense, and that… about a year and a half ago that leapfrogged the spending on defense. And I think part of the reason for the increased attention on this subject right now is that centuries’ worth of books have been written about the fall of empires often starting when the cost of financing your debt exceeds the cost of defending your country. So that may be kind of a history reason why there’s more attention on this. The fact that we’ve seen a waning of treasury buying on the part of Japan. That’s been going on now for about a dozen years in China. It does represent sort of a thousand cuts in terms of the crowding out effect, which is the term often used when the money you’re taking in from a federal dollars perspective is exceedingly going just to pay interest on a debt. It crowds out more productive uses for the money. 

In terms of can we grow our way out of this problem? Well, it’s a start because the math, as I already mentioned, is such that if the growth rate in the economy is higher than the growth rate in debt, you at least start chipping away at the problem. But to really alleviate this problem, and have any hope… if that’s even a mission on the part of anybody, to get back to, say, the late 1990s when we went into surplus territory, is you’ve got to try to tackle entitlements, which are still the biggest line item that comes out of the government. And you could raise taxes to 100% on everyone and everything. You could cut spending to zero. You still wouldn’t solve the problem without some attempt to reform entitlements. There’s just not a lot of political appetite to do that. 

This subject is one that I think is cared very deeply about by investors. The problem is that constituents, I think, care about it in the abstract, and they’re reading more about it these days, but it’s hard for them to quantify what $40 trillion in debt means. But maybe the most important point is they don’t tend to vote based on it. And if they don’t vote based on it on either side of the aisle, then if there’s one thing that the two parties play really nice at and do really well together is kicking this can down the road. And I don’t see an imminent change to that backdrop. 

MARK: Thank you, Liz Ann. 

Collin, this one’s for you. ‘What about the Fed raising rates before the midterm elections and his relationship with the president?’ So I assume that’s either… it’s about Warsh’s relationship with the president. Is he concerned about it? Is he not concerned about it? Does he care? What do you think? 

COLLIN: Yeah. You know, I’ve never been in a camp that the Fed will or won’t do something because of elections coming up. And we can look at history to show that they have hiked or cut or embarked on other extraordinary measures in election years. And we know that monetary policy acts as a lag. So doing something early versus doing something closer to the election, I just don’t think that matters too much for the officials in there. As I mentioned before, I think unless the incoming data really supports the case for a hold, I think Warsh will see a need to hike. Again, we’re not there yet, but if the data don’t support that case, I do think he’s sort of boxed in. 

In terms of the relationship with the president, I do think President Trump would be upset with that. I think that’s pretty obvious. We know that Trump and Warsh talk somewhat regularly, and that’s fine. I mean, they should be in communications. He might be displeased behind closed doors, but he might stick with the script that he’s held so far, in that he’s acknowledging that Chair Warsh is independent and can do his own thing. He might publicly say, ‘I disagree.’ But I’m not sure if he’ll necessarily disparage him, I guess the way he did with Powell. But I think this is something that I’m sure Warsh is thinking about, where he provided his economic outlook, told us that inflation is too high, and I wonder if that even moves the needle more to prove the credibility and the Fed independence to show that maybe he’s not being influenced by the current administration. 

So long story short, we don’t think its ever really influenced decisions too much. And despite, I’d say what the close relationship that President Trump and Chair Warsh have right now, I’m not sure it would prevent Warsh from backing a hike before the midterms. 

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

This is a question. I think it’s actually directed to both you and Liz Ann. I think you just answered the first part. The first part says, ‘Collin stated a 65% hike… 65% chance of a hike by September. Collin, do you see the Fed acting before midterms?’ And the second part to Liz Ann, ‘How would the market respond to a September hike?’ So Liz Ann, why don’t you take the second part? 

LIZ ANN: Well, I don’t know the history specifically of a September hike, but I will say that in the first year following the start of a hiking cycle, the average performance for the S&P 500 is about 4-1/2%. So that’s a little bit subpar relative to the long-term norm one-year return for equities. But the big difference in terms of the type of hiking cycle is if the Fed is moving quickly, basically tightening at consecutive meetings, the average performance has been about down 4% versus a Fed that’s moving more slowly where the market has been up more than 10% in one year out. So it’s sort of a… if they take the escalator, better for the market. If they take the elevator, significantly worse for the market. So that tends to be the deciding factor. Not the month in which they start or whether it’s an election year or not, but the speed that they have to move following the initial hike. 

MARK: Thank you. Thank you, Liz Ann. 

So we are… 8:55, so we got to get going here. So final question for everybody here. What’s the one thing you want viewers to take away from your comments today? And Liz Ann, why don’t we start out with you first, and then we’ll go to Collin. 

LIZ ANN: Yeah. Mark, maybe it’s the kind of stuff that’s not terribly exciting to talk about, whether it’s on this or doing a TV interview, but I think this is an environment where discipline is so important. In a period where we’ve got lower correlations, more dispersion, I think disciplines around diversification across and within asset classes, it’s a way to ease the risk associated with concentration. Another really important discipline is periodic rebalancing. And for those that don’t necessarily rebalance based on the calendar, consider portfolio-based rebalancing, which is your portfolio will tell you when it’s time to trim an asset class or a sector or a stock or a group of stocks because it’s become an outsized portion of your portfolio, add to areas that have underperformed, and stay in gear that way by adding low and trimming high, as opposed to trying to anticipate the next move, and trying to get in front of that. So the tried and true disciplines matter. 

MARK: Thanks, Liz Ann. 

Collin? 

COLLIN: Yeah, you know, I talked about the upside risk with yields, the hawkish Fed, and what that might mean for returns over the short run, but I wouldn’t want that to scare away your clients from owning fixed income. We still see a lot of value with the yields that short- and intermediate-term bonds offer. So our main guidance is to not…we don’t think now’s the time to aggressively be adding duration, even with yields rising to the levels that are towards the high end of their 17-year ranges. We prefer a below benchmark average duration, short- and intermediate-term maturities, but that doesn’t mean hiding out in cash because there’s an opportunity cost there. And if you can get higher yields with, say, two-, three-, five-year maturities than what’s available on treasury bills or money market funds, we think that’s attractive, rather than waiting for the Fed to hike rates when it’s not clear yet that they will or how much they’ll hike. 

MARK: Thanks, Collin. 

Michelle, you’re up. 

MICHELLE: I’m just going to build on what Liz Ann was talking about in terms of diversification. Don’t overlook European equity exposures. Sentiment towards Europe tends to lean negatively, but actually economic growth is improving. Earnings estimates are being revised higher, and the region tends to benefit when global growth is resilient due to large weights in cyclical sectors like financials and industrials. And then lastly, Europe may outperform in the event that global AI CapEx disappoints. 

MARK: Thank you, Michelle. 

And Jim, we’ll give the final word to you. 

JIM: Yeah, so commodity exposure is not something that everyone has in their portfolios, but we think that broadly this is a supportive environment for commodities. And so if it’s an area that you’ve not invested in in the past, we recommend using some of the resources at SCFR, and looking into the asset class. And then on the crypto side, this is a new and emerging asset class. It’s not for everyone, but adoption is growing all over the world. And so we recommend getting educated on the space. 

MARK: Thank you. Thank you, Jim.

And we are out of time. And before I run through the normal wrap up stuff that we have to do here, I wanted to make an announcement. We started doing this show in the early days of COVID. I think March 2020, I think, was the first one we did when all of our normal in-person events were canceled. And we just kept doing them because people kept tuning in. It’s been a lot of fun helping to put these shows together over the last six years, but I do have my day job, and I got to spend a little bit more time on that in the near future. And so this is my last call as moderator. The good news is we are dramatically upgrading the moderator. Alexandra Semenova, she will be taking over starting with our next fixed income website on… webcast, excuse me, on September 22^nd. Alexandra joined us in June from Bloomberg News, where she was a US stocks reporter focusing on kind of complex market dynamics, and translating that into clear actionable insights for readers with some of her print work, for viewers with some of her work on TV, and then listeners via Bloomberg Radio. So many of us here at Schwab loved her work, loved working with her when she was over there. So just delighted that she has been able to join us. So why don’t I turn it over to Alexandra to say hello? 

ALEXANDRA SEMENOVA: Hello, everyone. Thank you so much for the introduction, Mark. I’m looking at the comments coming in. It looks like you will be sorely missed, and I know that I have big shoes to fill. So really excited to have these conversations with our SCFR experts every month and with all of you. There’s a lot going on in markets, and we’ll be making sense of it all. Thank you so much for having me. 

MARK: Thanks, Alex, and looking forward to watching those shows. 

And if you would like to revisit this webcast, we’ll send a follow-up email with a replay link. Live attendance qualifies for one hour of CFP and/or CIMA continuing education credit if you watch for a minimum of 50 minutes. You’re not 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, and then Schwab will submit your credit request to the CFP Board on your behalf. For CIMA credit, you’ll have to submit that on your own. The directions for how to submit it can be found in the CIMA widget that will be appearing on the bottom of the screen. And then we’ve got one more option for those who need proof of credit. The widget is called the Certificate of Attendance. It’s found at the bottom of your screen in the widget dock, and that certificate will be available after 50 minutes of attendance. Finally, please take a moment to fill out a survey after the CIMA certificate and the Certificate of Attendance open at the end of the webcast. Click the X at the top and then the survey will appear, and your answers will help us planning future programming. As I mentioned before, the next webcast will be on September 22^nd. That will be a fixed income-focused event with Collin and his colleague, Cooper Howard. Until then, if you would like to learn more about Schwab Insights or for other information, please reach out to your Schwab representative. 

That’s it for today. And thanks, everybody, for watching.

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