[Intro screen with title of video “2 Minutes on the Markets” is displayed]
Hi, this is Chris Ferrerone, and I'm here with our two minutes on the markets with key takeaways on our global equity strategy mid-year outlook.
[Rotating globe icon displayed]
Global equities have moved higher this year, and importantly, they've had good reasons for doing so.
[Text displayed on screen with the headline of Markets have moved higher, followed by checkmarks in front of these three phrases: Global manufacturing pickup, corporate earnings growth, and Wave of investment in AI]
We've seen global manufacturing activity pick up in nearly all regions, and corporate earnings growth has followed. The two of those things have been key drivers for the equity market. And we're now seeing a powerful wave of investment specifically tied to artificial intelligence.
The combination of those factors should continue to support stocks as we move through the back half of the year. There are a few key changes that are important for investors to take note of.
[Pie chart displayed]
First, a large share of the gains we're seeing is coming from a relatively small group of companies. And when gains are concentrated and expectations are high, markets can become more sensitive to surprises. In addition, the macroeconomic environment is changing.
[An exclamation point is shown within a magnifying glass above a spinning globe]
Inflation pressures and geopolitical tensions have increased and this means several different things. First, potential for increased bouts of volatility. Second, larger divergences between winning and losing segments.
[The words inflation, interest rates, and market returns circle around a link]
Third, a stronger link between inflation, interest rates, and market returns.
[Line chart showing world inflation year-over-year % change from 2016 to May 2026]
Inflation has picked up quite sharply over the last couple of quarters. This was partly due to the tensions in the Middle East and the closures of the Strait of Hormuz, which sees twenty percent of global energy traffic flow through it every day. Part of this is also due to the accelerating economic environment globally. Clearly the inflation we've seen in the last couple of quarters is not as large as the spike that we saw coming out of COVID. Nevertheless, we're still at a point where inflation is running above central bank targets and policymakers have begun shifting from plans to cut rates that we saw at the end of last year to now looking at potential rate hikes. So when we look out through the back half of the year, we just note that there's less room for error.
[Wavy lines shown representing volatility]
We may be moving from a more stable market environment to one that has more volatility. Volatility can come through from higher inflation, change in monetary policy, or it can also come through from further deterioration in geopolitical conditions.
[Text shown with the headline The Bottom Line followed by checkmarks with these phrases: Diversify by geography and sector, Focus on quality growth, and Avoid crowding and overconcentration]
What you want to own, what factors your portfolio is diversified for, matters more than ever. We're maintaining diversification in terms of geographical and sector exposures. We're staying focused on quality growth and avoiding areas where there's crowding and overconcentration. This can help us navigate what's likely to be a more volatile market environment and provide diversification to some of today's bigger risk areas.
[“Learn more at Schwab.com/learn” text and Charles Schwab logo are displayed]
To learn more, go to Schwab.com or follow the link below.
[Disclosures are displayed]
