MARK RIEPE: Welcome, everyone, to Schwab Market Talk, and thanks for your time today. It is June 10^th, 2025. The information provided here is for general informational purposes only, and all expressions of opinion are subject to change without notice in reaction to shifting market conditions. My name is Mark Riepe, and I head up the Schwab Center for Financial Research, and I’ll be your moderator today. We do these events monthly. This one is a little bit different, in the sense that we’re going to have our speakers each do a presentation of 10 minutes or so, and then after everyone is done, then we’ll start taking live questions. If you want to ask a question, you can just type that question into the Q&A box on your screen, and then click submit, and you can do that at any time during the webcast. For continuing education credits, live attendance at today’s webcast qualifies for one hour of CFP or CIMA Continuing Education Credit if you watched it live for a minimum of 50 minutes. That means if you watch the replay, you are not eligible for CE credit. To get CFP credit, please enter your CFP Number in the window that will be popping up on your screen right now. In case you don’t see it, don’t worry. We’ll bring that up again at the end of the webcast as well. 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. Approximately 50 minutes after the show started, the directions for how to submit will be found in the CIMA widget that will be appearing at the bottom of your screen.

One more item and then we’ll get started. We’ve got a couple of resources available to you on the webcast console. In the upper right-hand corner, you’ll find a link to a video called Timely Tactics. That’s got tips on guiding clients through the latest market movements. And then we’ve also got in the bottom right-hand corner, you’ll find links to the mid-year outlook reports from our speakers, as well as the client-friendly chart highlighting the benefits of dividend-paying stocks.

Our speakers today are Mike Townsend. He is a Managing Director in our Office of Legislative and Regulatory Affairs. Liz Ann Sonders is our Chief Investment Strategist; Jeffrey Kleintop, our Chief Global Investment Strategist; Michelle Gibley, a Director of International Research; and Kathy Jones, our Chief Fixed Income Strategist.

So with that, let me advance the slide here to Mike’s slide, and Mike, take it away.

MIKE TOWNSEND: Well, thanks, Mark. And hi, everybody, from Washington DC. It is great to be with you. I thought I’d spend just a little bit of time today talking about some of the big issues that are going on here in the nation’s capitol, and there is no bigger issue than the One Big Beautiful Bill Act. This is the massive tax and spending bill that the Republicans are trying to move through Congress. And yes, that is its actual official name, the One Big Beautiful Bill Act. This bill has passed the House of Representatives, I think, as folks are probably aware, 215 to 214 back on May 22^nd. So couldn’t be any closer. Really, really narrow margins for the Republicans in the House of Representatives.

And I thought I’d focus, first, on the key tax provisions that are in this bill as it moves to the Senate. And I’ll talk in a minute about how things might change in the Senate. But the fundamental purpose of this bill, the sort of driving factor behind this bill, is the looming expiration of the 2017 tax cuts. And so this bill makes those permanent, and that of course includes the lower individual income tax rates as kind of the heart of that 2017 bill. It also includes a temporary increase in the standard deduction and in the child tax credit. The estate tax exemption would rise to $15 million per person beginning in 2026. And then it has several of the campaign tax promises that the president made during the 2024 campaign. So that’s no tax on tip income, no tax on overtime hours, and also making the interest on auto loans tax deductible. Those provisions will all be in effect for four years if the legislation becomes law 2025, meaning this tax year, through 2028. So they’re temporary provisions.

The other provision related to a campaign tax promise is the special $4,000 deduction for seniors 65 and up. And this is really designed to kind of replace one of the campaign promises, which was no tax on Social Security benefits. The reality of the rules under which that this bill is going to be negotiated and debated in the Senate, you can’t actually do the tax on Social Security benefits under those rules. So this is designed to kind of replace that. Basically, all seniors would get a $4,000 deduction. That’s for both regular standard deduction folks and itemizers would get this. And that would also apply 2025 to 2028.

Really, sort of lightning rod provision is the state and local tax deduction, which of course was capped at $10,000 in the 2017 bill. A big push by Republicans, a handful of Republicans in the House that represent California, New York, New Jersey, other high tax states to get that increased. And so in the bill is an increase in the state and local tax deduction cap to $40,000. Whether that survives the Senate still remains to be seen.

A couple of other things to mention. There is this remittance tax on… it’s a 3-1/2% tax, really designed to target illegal immigrants who are sending money back to their home country. But the way it’s worded is a little concerning to some on Wall Street, that it may inadvertently capture kind of routine transactions by non-US investors. We’re going to make sure that… well, we’re hopeful to make sure along with the rest of the industry that that’s clarified as this bill moves forward. So that’s something that is being worked on by the industry trade associations kind of taking the lead on that.

And then finally, the bill increases taxes on private foundations, as well as college endowments. And in both those cases, the private foundations and the college endowments, there’s sort of a tiered tax rate based on how large the endowment or the private foundation is. There are for both of those situations four levels of taxation.

So those are some of the key provisions on the tax side.

On the other side of the bill, or the spending side, you’ve got pretty controversial spending cuts to Medicaid and Snap, the food stamp program, along with cuts across other programs. Those are the real significant cuts and the most controversial. And those, again, are going to be debated here in the Senate, and could change as this goes forward. So we will see, we’ll have to see how that plays out.

This bill increases defense and border security spending. And then really importantly, it has a $4 trillion increase in the debt ceiling. We have been at the debt ceiling for most of this year, since mid-January. Treasury has been taking what it calls extraordinary measures to make sure that the United States does not default on its debts. And in some ways this is the really important part of the timeline for this legislation because although there are all sorts of dates out there about how they want to get this done by July 4^th, the real deadline is the potential default date, which Treasury Secretary Scott Bessent has said could come as soon as mid August. With Congress out of session in August traditionally, it really means the end of July is when this bill has to get done because of that debt ceiling increase. A $4 trillion debt ceiling increase should take it off of the table for probably through the mid-term elections and into 2027. So theoretically then, obviously, the next Congress would have to deal with that.

So now we’re here in the Senate, and there are a lot of different provisions that are concerning to different groups of senators. Particular focus on the state and local tax deduction. There aren’t any Republicans in the Senate who represent those key states that are affected by the state and local tax deduction. So that could possibly change. There’s not of all lot of enthusiasm for that. Of course any changes that are made to this bill in the Senate when it goes back to the House, because both the House and Senate have to pass the exact same legislation, that could make it trickier to pass the House. There are also concerns about the Medicaid and Snap cuts. There are concerns about green energy tax credits which are quickly wound down in the House-passed bill, but some of those green energy tax credits are important to red states, so there’s some tension around that. And then just the overall impact on the federal deficit and the national debt. There are some concern about that.

So the Senate is pushing forward on the bill. They’re targeting the week of June 23^rd for a vote, and a series of debate and amendments on that. And then as I said, it would have to go back to the House, where that very tiny majority is waiting, and hoping that the bill isn’t too different so that it messes up that small majority.

In the end, I think this bill passes. I think it passes… whether it passes by July 4^th or later in July, I’m not sure, but I do think this bill is likely to happen.

Just quickly on some of the other issues to watch in Washington. Obviously, tariffs are a big part of what’s going on. We’ve got negotiations going on between the US and China right now. But I think the key date that everyone has their eye on in terms of tariffs is July 9^th because that is when the 90-day pause that was put in place on April 9^th for those reciprocal tariffs, the different tariff rates on more than 75 countries, that’s when that 90-day moratorium expires. And so it’s not clear what’s going to happen at that time. The president and the White House obviously hoping to announce some trade deals between now and then. But to me that’s kind of the next big date to watch on tariffs.

A couple of other issues to keep track of. Cryptocurrency legislation currently moving through both the House and the Senate. This is really a big turnaround from where things have been previous to this administration. There’s really strong bipartisan support for putting a better regulatory framework in place for cryptocurrency. So there’s a bill dealing specifically with stable coins which are types of crypto that are pegged to a dollar, and there’s a separate bill that would create a real regulatory framework for the crypto space. It would sort of clarify who is responsible. Is it the SEC? Is it the CFTC for oversight? And put some other regulatory structure in place. So that’s definitely something to watch.

On the regulatory side, SEC has new leadership under Paul Atkins. Paul Atkins was a commissioner from 2002 to 2008 in the Bush Administration. Now he is the chair. He has been on the job six or seven weeks. And, you know, I think the priorities of the SEC will be sort of unwinding some of the Biden era regulations, something like the Climate Risk Disclosure Rule from the Biden era SEC that has been all but struck down by the courts, I think unwinding things like that. And then I also think things that were in the queue at the previous administration, whether that’s equity market structure reforms, or the use of predictive data analytics in investment advice interactions, or, you know, there’s talk about a revised Custody Rule, other things that impact RIAs, like third-party… overseeing third-party vendors. I think a lot of those are just going to sort of gather dust while the SEC moves in other directions, cryptocurrency being a very high priority.

There is one regulatory thing to keep an eye on, though, and that is the new treasury rule for RIAs regarding the requirement that RIAs have an anti-money laundering program. That is a treasury rule that that was approved last year, and it goes into effect January 1^st, 2026. As of right now, that is on the books and is going to go into effect. There are efforts underway to delay that date, maybe even to repeal it, but there are no guarantees right now that that will happen. So I think it’s important for RIAs to keep track of that, and continue to monitor whether any changes are happening, but also begin to prepare for that coming online in January.

So I’ll wrap up there with my disclosure slide. And, you know, I’ll just say in conclusion that this is a very uncertain atmosphere around this big bill, around tariffs, and I do think that this is a time when, you know, policy announcements coming out of Washington are having a direct effect on the markets, to a degree, I’m really not sure I’ve seen in my 30 years-plus here in Washington at least for this extended time, but I think that’ll continue to be the case as this One Big Beautiful Bill moves forward, and as tariffs continue to be debated.

So with that I will hand it off to my fabulous colleague, Liz Ann Sonders.

LIZ ANN SONDERS: Oh, thanks, Mike. And you have been a busy man this year, so we’ve all appreciated your input.

So our outlook, which covers the US economy and market just published yesterday. So ours is freshest out of the blocks, and as usual, I co-wrote it with Kevin Gordon. And this is a subset of some of the visuals that were in there. As we typically do, we start big picture, and then we move down into market-related.

So obviously, tariffs are still top of mind. A lot of the data that we have gotten to-date, both on the inflation side of things and the growth side of things, hasn’t fully reflected where tariffs sit right now. And of course this is a moving target. This dotted line represents what’s in place right now. So we’re at about… a little more than a 15% average effective tariff rate. And as you can see, even though that’s down from the height of where they potentially were going to be before reciprocal tariffs were delayed, you’re still talking about a level significantly higher than anything we’ve seen, and you have to go back to the Smoot-Hawley 1930s era. So still a tremendous amount of not just uncertainty but instability with regard to tariffs and the timing and the amount.

In the meantime, we did just get some OECD data out that compares the United States across a number of large economies you can see here both in terms of the GDP hit, expected GDP hit from tariffs, but also the inflation hit. And you can see that in case of the GDP hit, we come in second worse, with Mexico faring worse, again, the OECD expectations. And then also in second place in terms of the upside potential inflation hit.

We do think that we’re likely to see a pop in second quarter GDP as a bit of a mirror image of what we saw in the first quarter given the opposing force of what was a lot of front-running of tariffs, huge surge in imports, a little bit of the opposite. So that’s something to be mindful in terms of the actual data that’s going to be reported.

In the meantime, we still have this divergence mildly less so recently between the so-called soft economic data and the hard economic data. So soft economic data is survey-based data, confidence measures, consumer confidence, CEO confidence. No surprise to actually have seen a recent bit of a bounce up because we got to such depressed levels. At some point you just get down to that depressed level and you naturally expect to see a bounce. But we’ve also started to see a little bit of catch-down on the part of the hard data. And that’s been our base case that we were likely to see some convergence in the two. Probably more catch down on the part of the hard data than we saw in past soft data-related scares, like in 2023. And I think what really holds the key is the labor market, and frankly, that holds the key to a lot about the economy in terms of consumption and also Fed policy.

Speaking of which, this looks at the upcoming meetings and what is priced in, and the movement over time in terms of what is priced in. So we’re looking at a couple of rate cuts priced in. That’s been moved out a bit, and in part due to the stronger Jobs Report that we got recently. That is kind of our collective base case, but it is going to continue to be a moving target. We do, though, think the Fed, in terms of their dual mandate of price stability and full employment, AKA inflation in the labor market, they probably have a little bit more of an eye on the labor market as a trigger for a step back into easing mode, taking themselves out of this timeout that they have been in.

Another measure of soft data as I touched on is CEO confidence. You can see here with the lighter blue line, that has plunged significantly. What was yet to be seen is whether we see a commensurate drop in capital spending. I think one of the ways we have to think about capital spending is in a bifurcated way because AI-related spend is likely to continue to be robust. It’s the more traditional capital spending that unless we’ve broken this relationship, is probably going to place some catch-down to that very weak CEO confidence.

Another story that hasn’t been getting much attention that I think could also impact the consumption side of the economy and have an impact on confidence in spending, aside from just labor market confidence, is some of what we’re seeing in terms of the end of the moratorium at the end of last year on reporting of student loan delinquencies. That was a vestige of some of the restrictions on reporting delinquencies that were put in place at the same time that there was actually the ability to hold off on making student loan payments. That has now ended, and we’re starting to see a reporting, and we’ve seen delinquencies skyrocket. And that potentially has filter effects not only into things like credit scores, but also possibly the availability of credit in other areas. We haven’t yet seen it, but this is something that we’re keeping an eye on.

Moving into the stock market, hard data where we blend it with soft data relates to the trajectory for earnings growth. It’s been an interesting year in terms of both earnings that are already in the books and the outlook for earnings, because you can see here first quarter 2025, we saw that big hook higher. We had an expectation of about mid-single-digit earnings growth expected for the first quarter when earnings season began, yet by the end, we had seen a doubling of that rate. So we closed the books with about a 14% earnings growth rate in the first quarter. But as you can see, there’s been no extrapolation of that stronger growth into the remaining three quarters of the year. That is in part due to just general uncertainty on the part of the analyst community, but also a similar situation has unfolded as did back in the 2020 early pandemic period, where you have a decent percentage of companies that have withdrawn guidance altogether. And in the absence of precision around guidance, much like was the case back in the 2020 period, is analysts have erred on the side of lowering estimates. Now, the good potential news is that they may have set the bar sufficiently low. That is something that tends to happen fairly frequently. It certainly happened in the last couple of quarters. So that could be a potential better structure for the market going into the July period when we start to get earnings reports for the quarter that we’re just concluding now in June.

And then finally, on investor sentiment. This has been an interesting area of observation. As many viewers of this program and readers of many of the things that I’ve written over the decades know that I focus a lot on investor sentiment, and I think it’s important to bucket sentiment into both attitudinal measures of sentiment, as well as behavioral measures of sentiment. And at times, they don’t send the same message. This Crowd Sentiment Poll, which comes from our friends at Ned Davis Research, I like to show it as a snapshot of sentiment because it’s an amalgamation of a number of individual sentiment indicators, both on the attitudinal side of things, just survey data, like AAII, are you bullish or are you bearish, and then actual activity, behavioral-based data, like the put-call ratio and fund flow. So it’s a nice snapshot of a broad swath of sentiment. And you can see that going into that early April period where we had that crescendo low in the market on an intraday basis, the S&P had gone into bear market territory. We were there for the NASDAQ and small-cap stocks. We saw an incredible amount of depressed sentiment kick in most of these measures, both attitudinal and behavioral in nature. Courtesy of the rally that ensued since we’ve seen that pop back up. The good news is we’re back kind of in neutral territory. And you can see in the embedded table here over on the right, we think of, and we know of sentiment at extremes as a contrarian indicator. But interestingly, when you look at a collection of sentiment indicators, it’s not the extreme that represents that signal of we’ve got a good contrarian opportunity here. It’s the reversal off that extreme pessimism back into neutral territory that historically, as you can see, has generated the strongest returns. I’d be watching if the rally continues if we were to get back into that frothy territory. But the good news is we’ve seen somewhat subdued sentiment in the face of obviously what has been a very, very strong rally.

So I wanted to end on a somewhat positive note. So I did it with sentiment. And we’ll put up the disclosures here. And I think I’m turning it over to Jeff and Michelle, I believe.

JEFF KLEINTOP: Yeah, that’s right. Thanks, Liz Ann. And I just want to say thank you to everyone on this webcast. I want to take a minute to share my gratitude. I am on the verge of retirement here. This is my last week at Schwab after 30 years in this industry that I love, and 25 years as a chief investment strategist, and more than 10 extraordinary years here at Schwab. I’ve had the incredible privilege of doing work that I love alongside people I deeply respect, including the ones on this webcast. I wish for you all to have the same deep sense of fulfillment and gratitude that I have when you choose to end your careers. You know, I’ve come to believe the most valuable asset isn’t a stock or a bond. It’s trust. You know that. For those of you who have read my articles or followed my insights on social media, thank you for trusting me. It means everything. For those who ask questions, especially the ones that began, ‘This might be a dumb question, but…’ thank you. Those were often the smartest and led to the best discussions. Your questions kept me sharp, and your trust kept me grounded. And your stories remind me of what… you know, what we do is really about people, right, and families, and futures. It’s not just about markets. So now I’m stepping off the field, but I’ll be cheering this team on from the sidelines. I’m proud to share that Michelle Gibley, who I’ve had the pleasure of working with on the global team for the past 10 years, will continue to deliver our best ideas on international investing. And you can follow her on LinkedIn, and you can read our commentaries on schwab.com. So as I retire, I feel an immense sense of fulfillment and gratitude. So thanks to you all.

But before I hand it to Michelle, I want to say a few words about our global mid-year outlook published last week. To set the stage we outlined in our 2025 outlook, which was published six months ago, that we believed international stocks could clear the hurdles of uncertain trade policy and slower than average global economic growth to outperform US stocks. And thanks to the stimulus helping to improve economic and earnings growth and attractive valuations, able to weather a trade war, international has indeed outperformed, with the EAFI Index outpacing the S&P 500 by 16 percentage points so far this year, adding to the outperformance over the past two and a half years by international stocks since this bull market began in October of 2022. And our favorite region, Europe, is outperforming by 25 percentage points this year, and we think the outperformance can continue in this second half of the year. Economists have lowered their estimates of global growth this year. Liz Ann just talked about that and why, and you saw the numbers across different countries due to the trade war. Currently, the highest tariffs apply to imports from China to the US and imports from the US into China. And so as a result, those two countries are expected to experience some of the largest negative economic impacts.

But there is positive news. Despite the reduction in the growth outlook for 2025 globally, neither the global economy, nor China, nor the US are currently expected to be in a recession this year. That’s the consensus from the IMF, from the OECD, from the World Bank, the consensus of economists tracked by Bloomberg. And that’s because offsetting the predicted slowdown in the world’s two largest economies, many smaller economies are likely to see an acceleration in growth this year. Some of them are pretty big smaller economies.

Not only is growth improving in Europe so far this year, despite the trade war, Eurozone data has come in better than forecast, according to the Citigroup Economic Surprise Index. In fact, if you take a look here at this chart, there’s continued support for ongoing growth in Europe based on the OECD’s leading economic indicator for its four largest economies—Germany, France, the UK and Italy. They posted a record 31 straight months of increases as of May. We’ve never seen that before.

So there is some economic momentum here in Europe. This is not just a flash in the pan, first quarter, this is some momentum being built for some time. And this contrast of course with the US leading economic indicator, which I think fell for the fifth straight month. So diverging trends here in economic growth. Better momentum overseas.

Now, economic growth is important, but it’s not everything. It’s earnings that really drive long-term stock market performance. And the first quarter earnings season in Europe was, I’m happy to say, the best in years. Fifty-nine percent of companies in the Europe Stoxx 600 Index beat estimates. You may not be impressed by that because you used S&P 500 numbers, where they just kill it all the time, but that’s pretty rare in Europe. Usually the number is around 50-50 with companies beating versus missing. That’s at least five percentage points more than usual. And the best we’ve seen for earnings since we came out of the pandemic era, and we saw earnings rebound.

In fact, if you take a look at this chart, we got a couple lines here. Blue is the S&P 500. Orange is Europe. And I just want to compare the… or EAFI, I should say, international. I just wanted to compare the two, that’s why I put the US on here. But during the Q1 reporting season, the number of companies in the EAFI Index with downward earnings revisions to future quarters were within a normal range. They spiked up a little bit. You can see there. They’ve come down since. But during the peak of the reporting season as a result of the trade war, they went up a little bit, but then nowhere near what we saw in past crises. Unlike that for the S&P 500, where we really did see some bigger spikes, right?

So again, earnings estimates are holding up a little bit better overseas, and that’s contributed to the rise in the EAFE Index. This sort of healthier economic and earnings cycle outside the US is helping to drive those gains.

And finally, part of the reason for the stronger economic and earnings growth may be the shift of fiscal policy, Canada has planned fiscal stimulus in the form of tax cuts and spending growth this year. Australia has touted tax cuts and support for households for energy costs this year. Japan has approved a $6.3 billion spending package to support businesses and households hit by the tariffs. And perhaps most notably, we’ve talked about it a lot, Germany’s speed in shifting away from austerity by approving sizable stimulus could be a watershed event that leads other European countries to follow. The combination of additional defense and infrastructure spending of one trillion euros could add 1-1/2% to Germany’s economic growth every year for the next 10 years, and provide a new growth story to Europe, and more than offset the roughly six-tenths of a percentage point in terms of a drag in exports to the US.

So all of this is, you know, setting up this backdrop of stronger continued outperformance by international this year. And some of that was in response to, you know, the risk to foreign demand posed by US tariffs.

So Michelle, why don’t you bring us up to speed on the all-important tariff situation, and how it’s impacting our international outlook?

MICHELLE GIBLEY: Yeah, thanks, Jeff. I am happy to be here today.

You know, we’ve had some progress toward trade deals, but there’s a lot more work ahead than has been settled. A court ruled to block the reciprocal tariffs, but a legal battle is now underway. And if the Trump administration loses the appeals and is unable to use emergency authority under the International Economic Emergency Powers Act, IEEPA, it does have means to… you know, other means to increase tariffs. It could use Section 122 tariffs and increase up to 15%, 1-5, across the board for 150 days. So it’s limited to just 150 days. While Section 301, investigations for country-specific tariffs are made. Also, 338 tariffs for up to 50%, 5-0, for an unlimited time could also happen. In the meantime, trade negotiations could become more difficult due to the court ruling and legal battle, with potentially less urgency for countries to cut deals, particularly for those with lower sector-specific exposure.

We have a chart here, and I’m trying to figure out how to share it. Oh, here we go. There we go. US trade deals typically take 18 months on average… that’s the orange bar there… for both parties to sign. And there’s the possibility that rates increase again like they did after a 90-day pause during the first Trump trade war with China in 2018-2019. Trade uncertainty could extend over a longer period of time for businesses and consumers. The 90-day pause that ends on July 9^th, that could be extended again. But investors appear to be adapting, and we’re seeing smaller and smaller reactions by markets. We had a threat of a 50% tariff on EU imports. There was not a lot of reaction that day. Then we had the news to block the use of new tariffs, and then a stay to keep them in place, and again, little reaction. Additionally, 50% tariff on aluminum and steel. And escalation and then maybe de-escalation between US and China again. So it seems as though investors might be becoming desensitized to the tariff news. The economy has yet to feel the full effect of the tariffs, but their market bark may already be fading.

And then as the year progresses, investors are going to start transitioning to look at 2026 and the outlook for earnings and economic growth then, and that environment may have more trade certainty or less uncertainty. If we look at the performance for US stocks over the past 15 years, there’s been a lot of talk about US exceptionalism, and it may have resulted in many investors giving little consideration to the international exposure in their portfolios. The weight of MSCI EAFE countries in the broader All-Country World Index has been cut in half from the end of 2009 to November, just last year. And this shift likely occurred in many investor portfolios, which are probably underweight international relative to their longer-term strategic targets. Additionally, there are attractive valuations to persuade investors to move away from the US. International stocks are currently traded close to the historical average, just 14 times 12 months forward. While US stocks are overvalued relative to history, 22 times for the S&P. And, you know, by our calculations, it may not take a big shift out of US stocks to make a big impact on returns for international stocks.

So the impact of these flows is like pouring buckets into teacups. So for example, if just 1% of the value was removed from the market cap of the 10 largest stocks in the S&P 500, and then added to the 10 largest international stocks in EAFE, it would increase the market cap of those 10 largest EAFE stocks by 7-1/2%. That’s just a 1% move.

So it’s probably not too late to add international to portfolios that are underweight strategic targets because these relative performance trends can last for years.

I’m going to give the disclosures here, and then hand it off to Kathy.

KATHY JONES: Okay, thank you, Michelle. Hi, everybody. Just a quick overview of our outlook for the fixed income markets in the second half of the year.

So coming into the year, the one thing that we knew we could count on was the volatility going to be high this year. And that’s from, broadly-speaking, we’ve got something of a fragmentation of sort of the global order of things. Our alliances have moved around, and the US is pursuing a policy that’s very much US-focused. And I think that has created a lot of uncertainty and a lot of volatility as well. We’ve had the trade conflicts, tariffs, trade wars, negotiations, arguments back and forth. That creates a lot of volatility in markets. And I think from a longer-term perspective also, we’ve got debt levels at the government level around the world rising to levels we haven’t seen in a long time, perhaps never. And so that has all come into the fixed income market and caused volatility to pick up.

You can see from the MOVE Index, this is based on options volatility in the treasury market, it’s elevated, it is… compared to where we were for the decade before all of this started. We had the spike for COVID, came back down, and was really pretty low and stable for many, many years. And now it has moved up. It’s been back and forth quite a bit this year so far. We had a bit of a spike in April. It’s come back down again. But what we’re seeing is it holding at a higher level. And we think that that will continue, volatility will be the name of the game in the fixed income markets for quite some time, particularly in the government markets.

The other thing that we’ve seen as a result of all these broad trends is higher long-term interest rates. There’s been a lot of focus recently on 30-year treasuries, which is quite unusual. Usually, the market is not very focused on the 30 year because it’s largely purchased by pension funds, insurance companies, other very institutional entities that have long-term liabilities to match up with their long-term assets. But we have seen a lot of focus on this because now it’s at the highest level in 20 years. And I think again, another risk to the upside here because many of the policies we’re pursuing could push inflation higher and could push away some of those traditional buyers. And so it looks to me like there’s some room for this to move up even more, maybe to the 5-1/2% level. I doubt that it gets a lot higher than that, but we’ll have to see how things evolve here in the markets. But nonetheless, the trend is towards higher long-term rates, not just in the US but globally.

Much of this, too, has to do with the fact that we are seeing those rates rise globally, and particularly in Japan. Japan has now moved away from trying to repress those long-term rates. And they’re gradually doing it, but after decades it’s a big move. And right now, foreign investors can buy… or domestic investors can buy Japanese bonds at around 1-1/2%, say, and on a hedge basis that’s competitive with US treasury. So we are sort of pushing away some of our long-term buyers. I don’t think that’s a drastic thing. I don’t think it creates a crisis. But it is something that gradually is adding to the upward move in yields globally.

One of the other things that we saw this year was a big diversion between what yields were doing and what the stock market was doing in April when those tariffs were introduced. What we saw was this big breaking apart of the correlation between yields and the market, and that raised a lot of questions about the ability of treasuries to sort of hedge a move in the equity market. I think that this is kind of a one-time event. We’ve reverted to having a basic correlation, where bonds do protect you in a downturn in the equity market. But it’s variable, it’s always been variable, and I think one of the things that we’re cognizant of is that we could see some of these dislocations again from time to time. Again, that theme of volatility continuing in the markets, particularly in the treasury market.

I just want to… we get a lot of questions about what the rise in the debt level means for treasury yields. There’s a lot of concern that we won’t find buyers. I think, you know, the US treasury market is still large, highly liquid, a safe haven for most investors, and highly used around the world. I don’t think that changes at all. We still have the world’s reserve currency, which is important. Even if the dollar continues to come down, which we think it will, it’s still the world’s reserve currency and held widely around the world. But we think that, also, when you look at where debt levels are going relative to economic growth, that debt-to-GDP is rising, it’s really more the question of what is the yield investors demand to hold treasuries in a world when we’re adding to the debt level, not whether they’ll hold the debt. So I don’t want to make too much out of rising debt causing a crisis in the treasury market or people to move away. It’s more the risk premium that they choose to hold those treasuries.

And speaking of risk premium, so much of the rise in 10-year yields this year in the treasury market has really been due to the rise in the term premium, that extra yield investors demand to hold a longer-term bond versus rolling over short-term bonds. As you can see here, we disaggregated the rise in yields since April, when the tariffs were announced. And you can see most of the increase has actually been due to the rise in the term premium, that uncertainty level, as opposed to, say, inflation expectations, which have actually notched down a little bit since April. So we call this coming in the year of the term premium. We still think that’s the year of the term premium is a major driver, and that’s likely to keep longer term yields elevated relative to where they might otherwise be if the economy slows down, if inflation continues to come down. Even if the Fed cuts rates, we likely to see some elevated level of longer-term rates simply because the term premium will stay high because of all these broader factors that are going on both domestically and globally.

That leaves us with a steeper yield curve. That’s another one of our calls for this year. Continue to see some steepening of the curve, a bear steepening for now, but also could be a bull steepening. If we get rate cuts by the Fed, which we think are still likely late in the year, we still look for the economy to slow down a bit, inflation to continue to ebb a bit, and for the Fed to probably kick in for one, maybe two rate cuts later in the year. That could bring down short-term yields, which are already pricing in one to two rate cuts. If you look at where the five-year is, it’s already got that priced in. The 10-year can continue to stay pretty high. And we think that this spread will continue to climb from here because of all those longer-term factors that are taking place. So still a steeper yield curve.

So where does that leave us in terms of opportunities in the market? So if we’re looking at a more volatile market, one with potential for longer-term rates to rise in a steeper yield curve and a potentially softer dollar, that leaves us more cautious than we might otherwise be with yields where they are. Actually, real yields are pretty much elevated. But that leaves us more cautious because that term premium, the policy uncertainty that’s driving it continues to be there.

So we have liked keeping average duration close to the benchmark Aggregate Bond Index, The Bloomberg Barclays Aggregate Bond Index, the average duration on that around six years. We think that that’s a good starting point, keeping duration there or lower. You don’t really get paid enough yet to go too much further out in duration. I think there will be opportunities, though. We want to stay nimble because those opportunities present themselves.

The second factor is we want to stay up in credit quality, favoring, say, investment-grade corporate bonds and municipal bonds. Not that you don’t want to hold some of the more aggressive income bonds, like high-yield, EM, and preferreds, but want to hold them… limit the allocation there simply because in a more volatile world, those are less liquid and have potential to have adverse reactions when yields rise. Again, these have actually been pretty strongly performing parts of the market, so I don’t want to say not to have an allocation there.

Some of that is because all in for all the volatility yields haven’t moved that much, and so the coupon is really important. And we see high-yield that’s been particularly a big driver of the return so far this year. In international bonds, returns have been very strong, but that’s because of the drop in the dollar. Largely because of the drop in the dollar, yield differential hasn’t changed all that much, actually has changed in favor of the US a bit. But nonetheless, it’s been the drop in the dollar that has driven those returns.

So again, we want to focus on majority of a portfolio built for reacting to some of these adverse trends that are taking place, but still be nimble enough to take advantage of opportunities. The opportunities we’ve seen this year so far have been largely in the municipal bond market, so any of those out there who have been buying municipal bonds for their clients. We’ve seen times when the dislocation has been really quite impressive, and you can capture very attractive yields relative to, say, treasuries. So those spreads have widened a bit from time to time. Earlier this year in some of the high-tax states, like California, New York, Hawaii, there have been after-tax returns as high as 8% for somebody in the top tax bracket. And you only really had to be in, let’s say, a 25% tax bracket to have municipal bonds perform better than treasuries.

So we want to be nimble, take advantage of opportunities, which we think are going to come along. But for right now, we’re still kind of hugging the benchmark because of all of the longer-term trends that are creating this volatility.

And with that and the disclosures done, I’m going to pass it back to Mark Riepe.

MARK: Alright, thank you. Thank you, Kathy, very much.

If you would like to ask a question, you can just submit the question, or type the question into the Q&A box and click Submit. We’ve got a lot of questions here already, as well as the questions you submitted during the registration process. So thanks for those.

Mike, let’s start out with you. We’re going to go right here, question 9 and question 13. Here we go. Question 9, ‘Does the SALT have an AGI limit?’ And the other one with that, ‘What year would the $40,000 SALT deduction limit be effective?’

MIKE: Yeah, the SALT deduction increased limit would be effective for 2025, and it does have a phase-out starting at $500,000 in income. So then it would phase out after that. The provision also has something that would raise both the cap and the income by 1% each year in subsequent years. So in other words, that phase-out would start at $505,000 in the following year, and continue up in that manner. So yeah, that’s the answer to those two.

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

Liz Ann, let’s go… here we go. ‘What are your thoughts on small-caps?’

LIZ ANN: Well, that’s a very broad category, so I think you have to be really careful about making sort of monolithic pronouncements on small-caps. If we use an index like the Russell 2000, it’s got a wide array from a quality perspective, and it’s still the case that an index like that has more than 40% of its stock, some combination of not profitable and zombie companies, so without sufficient cashflow even to pay the interest on their debt.

So we are starting to see some things percolate in small-caps. There’s a lot of interest in certain subsets within nuclear, in terms of the whole AI power generation story. You’ve got quantum as a kind of a hot industry being considered in small-caps. As you know, Mark, we do a lot of factor-based work, and in fact, our sector views are factor-based. Schwab Equity Ratings is factor-based, and we analyze what’s going on in terms of factor drivers and where factor performance has been. And what’s been interesting this year in terms of what has been doing well within small-caps. Number one, it’s kind of up the cap spectrum within the small-cap universe, so maybe call that in the mid-cap category. But it’s also consistent outperformance among factors that are earnings growth-oriented, so historical growth, prospective growth. So you’re seeing investors willing to pay or focus on stocks within that otherwise weaker profitability profile index that have that positive growth, both historical and positive growth outlook. So I would definitely stay up in quality, but I think that there are some opportunities down the cap spectrum.

MARK: Thanks, Liz Ann.

Kathy, what is your view of US dollar valuation?

KATHY: Well, we are expecting the dollar to continue to decline this year. It has been… it rose for over a decade to very high levels. And I think some of that was just driven by very strong capital inflows from abroad, higher US interest rates relative to the rest of the world. And for a long time the expectation that the US was kind of the center of the investing world, that US exceptionalism. I don’t think that that’s definitely over or that we’re going to see anyone abandoning the US dollar in droves, but it had reached very high valuation levels depending on how you measure it. There’s many ways you can measure valuation. But it was certainly overvalued based on, say, purchasing power, parity, and other metrics that are traditionally used. Now, traditional valuation measures are very unhelpful when you’re trading or investing in currencies, so I wouldn’t take that too seriously.

But all that being said, many of the trends that were bringing dollars in seem to be reversing right now, and particularly with those rates rising abroad, particularly in Japan, which is our largest creditor. And again, on a hedge basis, a Japanese investor can stay home and earn the same as they could earn in US treasuries.

So all that will probably drive the dollar somewhat lower. We’re looking for maybe another 4- to 5% on the downside from here on a trade-weighted basis. One thing to expect is volatility there because trade agreements can make a big difference. But I think one of the key factors that we’ve seen this year, which is very unusual, is when those tariffs were announced, the dollar didn’t go up, which traditional economics would indicate it should. It went down. And it looks like that was just investors pulling back and saying, ‘Well, with the trade wars going on, perhaps the US isn’t as attractive a place to put money as it was before.’ I think we’ll probably continue to see that among the volatility. So a modest decline from here in the second half of the year.

MARK: Thanks, Kathy.

Given that view, Jeff, this one is for you. ‘How much of this year’s strong international stock market returns can be attributed to the weaker dollar? What would you say to clients’ concerns about buying into international stocks now, and then have the dollar reverse course and start strengthening again?’

JEFF: Sure, I can understand that. So I’d say three things. First, in terms of this year’s gain, about half of the outperformance can be attributed to the dollar weakness. So it’s a big factor, but there’s still nearly 10 percentage points of outperformance by international in local currency terms. Second, it’s important to remember that international is outperformed for two and a half years now, measured in dollars. It isn’t just a recent blip driven entirely by weaker dollar. And third, improving international economic growth, earnings growth, attractive valuations, ongoing fiscal and monetary stimulus, and money flows, among other factors, all favor continued international outperformance. Our view is, as Kathy said, is for a weaker dollar, but international performance is not dependent only upon that.

MARK: Alright, thank you. Thank you, Jeff.

Let’s see, Mike, we’ve got a few questions here. ‘Does the $4,000 deduction for seniors have a phase-out for high income earners?’ And then another question along those lines on the $4,000 deduction for seniors, ‘Must they be taking their Social Security benefit to get it?’

MIKE: No, is the answer to that second question. This is just a straight up additional deduction. So it’s on top of the existing deduction for seniors. Again, it’s only in effect for four years, 2025 through 2028. And there is an income phase-out at 75,000 for an individual, 150,000 for couples. So it does begin to phase-out at that level. But you don’t have to be taking Social Security benefits. It’s really just a straight additional deduction.

MARK: Right. So I think that answers the next question that just came in. ‘Is the $4,000 senior deduction in addition to or replacing the existing deduction for those 65 and over?’ You’re saying it’s in addition to, not replacing it.

MIKE: It is in addition to, correct. Yes.

MARK: Perfect. Thank you.

Liz Ann, this is one of our registration questions. ‘Is there any worry about mass deportations affecting the labor supply and the economy?’

LIZ ANN: Yes, but I would say you have to take just the significant drop in new immigration happening, as well, alongside deportations. And it is the case that since 2019, close to 90% of all labor force growth has been foreign-born. That’s obviously a combination of illegal and legal immigration. And there’s a lot of common thinking on this subject. You’ve got the likes of the CBO and the IMF and Peterson and Brookings and the NBER and even the Fed saying that all else equal, this puts downward pressure on economic growth and puts upward pressure on inflation. It may be to the benefit of some of the lower wage areas that have attracted in the past immigrant workers that might give some bargaining power from a wage perspective to those native-born that are competing, but that also would represent something that is higher inflation. And if you don’t get a commensurate boost in productivity, and the latest productivity trends have been down, not up, in part, due to things like deglobalization and protectionism, then you have both sides of what is sort of the broad calculus for GDP growth, which is labor force growth times productivity, moving in the wrong direction.

The other thing I’d say that doesn’t get as much attention is that immigrants represent less than 15% of the workforce, but they’ve represented more than 25% of new business formation. So it has an impact on things like entrepreneurship. That class tends to be more entrepreneurial than native-born.

And then finally, there’s the demographics of the fact that we have, our native-born is aging. So what immigration has brought in is a lot of younger workers that help support that safety net, that if you lose that, then your demographic outlook in terms of that specific input into the economy starts to falter a little bit.

So the net of it all is leaving aside the legality of it and the emotions around it and the politics of it, it is set to be a mathematical hit to GDP.

MARK: Great. Thank you. Thank you, Liz Ann.

Michelle, we’ve got a couple questions here. ‘What is your outlook for emerging markets?’ And a few along those lines, so take it away.

MICHELLE: Yeah, emerging markets have been outperforming this year. We saw this every quarter during the first term for Trump, and we’re seeing that this year as well. Certainly, China has helped. There’s been a shift in sentiment toward China, and that happened really with the DeepSeek revelation at the end of January. But, you know, innovation in China has been happening for a long time. It didn’t just happen overnight. And so there’s more optimism about China.

And it’s interesting to note that goods exports to the US only account for 3% of China’s GDP. So the domestic economy there is probably more important to their stock market than the outlook for exports. And also the weight of internet and tech companies is nearly half of some of those indexes, so that’s also important to note. Emerging markets do tend to be volatile, though, and so we suggest a smaller weighting for those.

MARK: Thank you. Thank you, Michelle. For those who normally attend these calls, normally we end at 9:00 AM Pacific, but because we get so many questions when we do these Outlook presentations, we’ll be going another 15 minutes.

Kathy, this one is for you. ‘With benchmark duration presenting the best opportunity in the bond markets, do you see better rates for global fixed income at the same duration?’

KATHY: No, not in the developed markets. We’re not seeing yields that are more attractive than the US. Only a handful of places, maybe Australia, etc. Most of the outperformance in international, as I mentioned earlier, is due to the currency change.

So I think that, yeah, we’re seeing rate cuts in those markets, and that’s helped as well. We’ll continue to probably see a little bit of that in developed markets. We’re seeing a little bit of that in emerging markets. So it’s not that the opportunity isn’t there, but if you’re looking at a pure yield basis in international development markets, there’s very few places that actually have a nominal yield higher than the US. So it really is a combination of the expectation of what the dollar is going to do in the second half of the year and the trajectory of rates. And I think that combination does continue to lift the total return in international developed markets and probably in emerging markets as well. But that’s more driven by the combination of the currency and the fact that many countries are still cutting rates relative to what’s happening in the US. So it’s not on a yield basis.

MARK: Thanks, Kathy.

Mike, I’ve got a question here for you. ‘You mentioned private foundations in your presentation. Are donor-advised funds included for charitable giving?’

MIKE: So donor-advised funds are not part of the private foundation provision. This is just a straight-up tax on the assets of a private foundation. It’s a tiered tax for… there’s four levels, depending on the size of the private foundation, but doesn’t affect donor-advised funds.

MARK: Perfect. Since that was very concise, I’ll give you another one. ‘Do you have any updates on the DOL rollover IRA rules?’

MIKE: Yeah, you know, the whole broader question of the DOL’s Fiduciary Rule, which affects, you know, that rollover provision, the entire fiduciary rule, which has gone back and forth over 15 years and now four presidential administrations, the status currently is that it was paused by the courts, I expect it’s going to be thrown out formally by the courts, but either way, the Trump administration is sort of not challenging that as the Biden administration was because it’s a Biden administration rule.

So I think we’re sort of back to the drawing board on the Fiduciary Rule and how that’s going to go forward. I’m not honestly very sure what the Labor Department under the Trump administration will do, or even how high a priority this is for the new administration. So we don’t have a lot of clarity on where that one is headed.

MARK: Okay. Thanks, Mike.

Liz Ann, this one is for you. ‘Has civil unrest affected markets historically? If the current situation in LA escalates, do you see it impacting the equity markets?’

LIZ ANN: You know, it depends, really, on the severity of the unrest, and also of course, what else is going on at the time. Probably two of the most significant impacts that could be tied somewhat directly to civil unrest were in 1968, in the aftermath of the assassination of Martin Luther King, and again, in the early 90s, I think it was 1992, when we got the verdict, the Rodney King verdict. And in both cases, there was concern that there was going to be a further escalation in that civil unrest. So it’s not just the magnitude, but the perceived extension of that. And then of course you have the impact that it can have on where the unrest is, if it’s having a direct impact on businesses, small or large, or on industries in that area. So that’s a little bit more of that micro impact.

That said, as we have all written about many, many times over the years, a lot of these kind of black swan type of events, whether it’s geopolitical crises or civil unrest, they can have a short-term impact on volatility, but unless they turn into something protracted from an economic standpoint, the volatility tends to be somewhat short-lived, and you go back to the market being driven by many of those more traditional fundamentals.

MARK: Thank you, Liz Ann.

Jeff, ‘Doesn’t Germany have to share a lot of its money with the EU? Does the percentage it shares increase with its stimulus package?’

JEFF: No. Well, no, not really. Germany is a significant net contributor to the EU budget. I think last year its contribution was, I think, 29 billion euros. And that’s the highest of any other country in the EU, simply because it’s the biggest country in the EU, but it’s not really significant. It’s a fraction of 1% of Germany’s 4.5 trillion Euro GDP. The rest of Europe is planning its own stimulus and defense expenditures, and that’s one of the reasons that Europe’s defense stocks across Europe are killing it this year. The EMU, European Monetary Union, Aerospace and Defense Index, stocks I’ve been calling the new Mag 7 all year, they’re up 60% this year. Germany isn’t the driver across Europe, it’s the catalyst after Germany insisted on budget surpluses across Europe for a decade following the European debt crisis. That’s now all changing, and that’s really leading to this new era of more of fiscal spending in Europe. Fiscal stimulus combined with monetary stimulus, something we really haven’t seen since 2009, 2010, in Europe, been a very long time, all that kicking in. And that’s why the outlook for growth, the outlook for both economic and earnings growth are really improving here in a way that seems sustainable.

MARK: Thanks, Jeff.

Mike, I’ve got a few… again, probably a few questions here that are relatively quick. So let’s take a few of them here. ‘At what age is someone considered to be a senior?’

MIKE: 65 and up for that senior’s deduction.

MARK: Got it. ‘Is there a Fort Knox gold audit under consideration?’

MIKE: Well, you know, I think the president has visited Fort Knox to check it out. I think there’s going to be probably a formal audit at some point. We’ll have to see. I don’t have the latest on that.

MARK: And then one more here for you. ‘Is there a phase-out for no tax on overtime?’

MIKE: Yeah, I would say on both the no tax on overtime and the no tax on tip income, there’s a complex set of rules that are going to have to be part of that. Both have a lot of specifics about sort of who they apply to and that sort of thing. So yes, there are income limits, but for the overtime hours it’s actually about how about how much overtime you have and that sort of thing. So there’s no simple answer on both of those. Those are pretty complex to spell out. And once the bill passes, there will have to be more clarity coming from the IRS on exactly who they apply to and how they’ll be put into effect. So those are the two that don’t have the sort of simple lines here and there. A lot of rules that are going to have to be in effect for those.

MARK: Hey, one follow up, Mike. ‘Did he say 55 or 65?’ I think you said 65.

MIKE: 65, yep. 65.

MARK: Alright. Kathy, I got a registration question here. Where did I put it? Could we… hear you go. ‘Could we see a scenario where the Fed allows the 2% inflation goal to move up?’

KATHY: It seems very unlikely to me. The Fed is actually going through a framework review right now, and there are a number of different ways to set policy that are being discussed right now. There’s just a conference very recently last week about it, where people presented various papers about how the Fed should conduct policy going forward. And the last time they did it was this average inflation targeting, and that was set because inflation was actually kind of falling too much, and the fear was that it was staying under the 2% target for too long and kind of dragging down the potential for economic growth. And of course now that’s reversed, and we’ve had higher than 2% inflation for quite some time. So they’re ready to throw out the average inflation targeting.

The question is what do they do going forward in terms of setting policy? I don’t think they abandon the 2% at all because there’s really no point. There’s no upside for the Fed to do that. If they do that, it might signal that they’re going to accommodate higher inflation and risk higher inflation expectations, which can be self-fulfilling. That’s something they’ve talked about frequently, and they don’t want… they’re really focused on inflation expectations. But I do think that they may adopt a framework that includes other metrics that are perhaps more… trying to get more stable over time. Something like targeting nominal GDP growth at a certain level. There are a lot of different proposals out there right now. We’ll see where they come down.

But moving away from 2% I think is not likely. It’s been in place for quite some time. It’s been adopted by other central banks around the world. It would probably be seen as a white flag in terms of, you know, giving up, surrendering the fight against inflation, and I don’t think the Fed is willing to go there.

MARK: Thanks, Kathy.

Liz Ann, we’ll give the last question to you. ’What is your outlook for non-AI/tech capex spending, taking into account the drop in CEO confidence mentioned in your slides?’

LIZ ANN: Yeah, I think this is going to be interesting because so much of the capex spend now is on the AI side of things, and there doesn’t appear to be any diminution there. It’s sort of full steam ahead. Not to mention the fact that related to that is areas like power generation, data centers, which filters into areas like utilities. So a little bit of hybrid areas that will get a boost as well.

I think maybe the way to think about it’s not just AI versus non-AI, but capex in areas that are directly by industries, by companies, directly impacted by tariffs in place now or tariff-related uncertainty. I think those types of plans get put on hold while they wait the rules of the game and understanding what the playing field is from a tariff perspective. But we’ve got that other segment of AI, etc. capex that could continue to be fairly robust.

MARK: Thank you, Liz Ann.

So we’ve got like five minutes left, so let’s just go through the panel. If there’s one takeaway you would like listeners and viewers to walk away from, what would that be?

So Mike, let’s start with you.

MIKE: Well, thanks, Mark. And I would highlight just a couple of upcoming dates. I’m looking at the week of June 23^rd for Senate debate on the One Big Beautiful Bill. Then the House would like to pass it soon after that and try to get it done by July 4^th. That’s a little bit of an artificial deadline, and if it slipped into mid-July, I would not be surprised. The other date I’m watching July 9^th, that’s the reciprocal tariff 90-day pause ends, and so something is going to have to happen on those tariffs. And even if they’re just delayed, that’s a key date to watch.

MARK: Thanks, Mike.

Liz Ann, take it away.

LIZ ANN: Yeah, I think, you know, none of us have the ability to forecast policy-related announcements and decisions, other than knowing they can be volatility drivers. I think what then makes sense to focus on is what is the setup as we navigate these uncertainties. So as a for instance, heading into the early part of April, the setup was you had a little bit of frothy sentiment. Yes, the market had started to move down, but you were seeing resilience in terms of frothy sentiment, and you had not seen a market go into severe oversold territory, breadth was hanging in there. And then we had the reciprocal tariff announcements, and the markets started to really crater in that first week. Sentiment got incredibly washed out, very, very despairing. You saw the markets move to extreme oversold territory. So the setup was one where any kind of positive news, like the delay of the reciprocal tariffs that we got on April 9^th, that was enough to cause a big move higher. So I think it’s that sentiment technical breadth setup that helps you navigate how speedy a move might be when you get either a positive or negative catalyst.

MARK: Thanks, Liz Ann.

Jeff, what are your thoughts?

JEFF: Well, Mark, these are my final, final takeaways after 30 years in the business. So again, thanks for all your trust over all these years. As Liz Ann said, no one for sure where it’s next, but international diversification is paying off in portfolios. Making big bets in a world of uncertainty seems to be less wise than broad diversification across the world, which clearly has been beneficial in managing volatility and improving returns this year. I feel like I’m ending on a high note, so I’ll wrap it up there.

MARK: Great. Michelle, what are your thoughts?

MICHELLE: Yeah, just to piggyback a little bit on that, you know, there’s been a question about what’s changed this time for international, you know, the stocks have been cheap for a while. But what’s changed is that US policy is prompting countries, particularly in Europe, to take actions that they had been unwilling to take before. You know, Germany moving away from surplus, and they can do that. Germany’s debt-to-GDP is just half of that in the US. And so they can step up spending on defense and infrastructure, increase growth, potentially reduce regulation. You know, today, Blackstone announced plans to invest up to half a trillion in the region over the next 10 years. So that just cites the growing appeal of the region. And remember, it’s not the level of growth that matters, it’s the change. So better or worse matters more than good or bad here. Also follow me on LinkedIn

MARK: And Kathy, we’ll give you the final word.

KATHY: Okay, so the theme is volatility. But I also want to point out that we do expect the Fed to cut rates towards the end of the year and inflation to continue to ebb. So that’s good news for fixed income investors. Also, despite all the volatility we’ve seen and the back and forth on rates, the Ag is up about 2.7% year-to-date on total return. The Global Ag is up over 5% total return. So it really is important to focus on the coupon income, and being nimble, and taking advantage of those opportunities that come up from time to time.

MARK: Alright, thank you. Thank you, Kathy.

And we are out of time. So Mike Townsend, Liz Ann Sonders, Jeffrey Kleintop, Michelle Gibley, and Kathy Jones, thanks for your time today. If you would like to revisit this webcast, we’ll send a follow up email with a replay link. To get credit, get CE credit, you need to watch for a minimum of 50 minutes and watched it live. Watching the replay doesn’t count. To get CFP credit, please make sure you enter your CFP ID Number in the window. That should be on your screen right now, and then Schwab will be submitting that to the CFP Board on your behalf. For CIMA credit, you’ll have to submit that on your own. Directions for submitting it can be found in the CIMA widget that’s at the bottom of the screen. Our next webcast will be July 1^st. Liz Ann, Kathy, and Michelle will be the guests on that show. Until then, if you’d like to learn more about Schwab’s insights or for other information, please reach out to your Schwab representative. Thanks again for your time, and have a nice day.

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