Schwab 2026 Mid-Year Outlook Lightning Round: Inflation, Fed, U.S.-Iran & AI Memory

[00:00:00] Speaker 1: It's time for our lightning round. We asked for viewer questions and you all came through, so thank you. Joining us once again, Lizanne Saunders, Joe Mazzola, Cooper Howard and Chris Ferrarone. Lizanne, let's start with you. One viewer wants to know, what's your inflation outlook and how is the stock market interpreting the recent comments from the new Fed chair? [00:00:19] Lizanne Saunders: Downside to inflation, certainly headline inflation by virtue of the move down in oil prices. But there are still some feeders that could mean continued stickiness in core measures of inflations. Core services, ex-housing, is still relatively hot. So I think that puts the Fed in a position to think about tightening policy. I think everybody's in a wait-and-see mode as it relates to Kevin Warsh. The creation of these task forces is what I think there'll be a lot of focus on to try to see what comes out of those as it relates to the communication strategy, what will happen to the dots plot? Will he continue to hold press conferences? Is he considering alternative [00:00:56] Speaker 1: measures of inflation, etc.? And Cooper, let's come to you and stay with the Fed here. How will the changing of the guard at the Fed impact the bond market? You know, I think that Lizanne hit the nail [00:01:07] Cooper Howard: on the head in wait-and-see mode. So I think that right now we have to see ultimately what comes of the task forces. It would be likely that we'll see a pullback in terms of communications from the Fed. And I think what that will probably mean to rates is a little bit more volatility on the short end of the yield curve. But I don't think that this is anything new to the fixed income market. If we think about a press conference after every meeting, that was something that Powell put into place. If we think about the SEP and the dots plot, that was a Bernanke invention. So we would go back to an environment where we would be pre those communications. And I think that the market would just be able to hum along and do all right with that. But a little bit more volatility probably, Marley. [00:01:44] Speaker 1: And Chris, this next one is for you. What are the potential long-term effects of the Middle East conflict on global markets? [00:01:52] Chris Ferrarone: Yeah, Marley, you know, that's a challenging one here. You know, that the Middle East conflict was not just about an energy shock. It was, you know, yet another episode of supply chain pressure, another episode of inflation, another episode, you know, of geopolitical stress. And over the long term, you know, that will add a risk premium to markets. That will add demand for energy security, domestic energy security. That will add, you know, an impact for countries to look for and companies to look for supply chain reconfiguration. So there are a lot of long-term implications of this conflict with Iran, even if the straight opens up in the near term. [00:02:40] Speaker 1: All right. And Joe, coming to you here, Sandisk was the top performer on the day. So we have a memory question here. Is there any risk of demand destruction in memory chips because of the rapid increase that we've seen in prices? And what warning signs should people be looking for? [00:02:54] Joe Mazzola: Oh, yeah. I mean, I think at some point there is. From what we've heard, at least in the Micron earnings yesterday, that doesn't seem to be the case in 2026 or 2027. But, you know, that can change very rapidly. I think what I would be looking for, maybe from a technical standpoint, is something that hopefully Chartist will be looking at. And that's the 21-day exponential moving average. It's been a really good indicator for the semiconductor index, which is what we were talking a little bit earlier about. Every time it's kind of pulled back, it's bounced off that. And I think if we see renewed pressure on a pullback of that, that would be at least an indication that things will maybe be chopping around a little bit more while totally [00:03:33] Speaker 1: going ahead. And Lizanne, another viewer wants to know, do I need to be concerned with the national debt? Don't major crises start with over-leveraging? [00:03:43] Lizanne Saunders: Well, I think we have to be concerned about it because of the crowding out effect and the fact that the cost of servicing the debt now exceeds the cost of defending our country in terms of defense spending. But we don't, we aren't concerned about something calamitous. So when I get those questions, and I do all the time, there's often a follow-on to it. Will the dollar lose its reserve currency status? The answer to that is no, there's no replacement for it. Will the U.S. default on its debt? We will not default on our debt. You know, will foreign creditors just wake up and start dumping treasuries? They will not do that. Diversification is happening, but there's still ample demand for treasuries. So the crowding out effect, the compression that it puts on economic growth is valid, but those sort of Armageddon scenarios we don't put a high probability on. And Joe, this next one is a question I ask myself [00:04:33] Speaker 1: almost every single day. Why is there so much more volatility in stock prices, even on days with little news? I mean, the first half hour of trading this morning, a perfect example here. [00:04:40] Joe Mazzola: Well, it's dispersion. And I think I would look at the volatility for single stocks relative to the indexes, because for the most part, index volatility has been pretty well contained. You know, you get a couple of days above 20, but for the most part, the VIX gets back below that. It's the single stock volatility that's been really interesting. I think that has a lot to do with just the expansion in terms of options trading and maybe some of the levered options trades that go along with it, whether it's the ETFs or just kind of the single stocks themselves. And Cooper, we've got another one for [00:05:09] Speaker 1: you. A viewer wants to know, are munis a good way to protect income that you've gained through [00:05:14] Cooper Howard: individual stocks? You know, I think that if you're an investor who is in a high tax bracket and especially one who's in a high tax state, then munis are worth a second look. If you look at just the absolute yield right now and adjust it for being in that top tax bracket, that's north of six and a half, seven percent, depending on the state tax rate you include. Also, if you look at the volatility related to munis, it tends to be very, very, very low, especially related to the equity market. So it can be a diversifier from more volatile equities. So I do think that if you are an investor who is in a higher tax bracket and you are in a taxable account, then yes, munis are worth a second look. [00:05:53] Speaker 1: And Chris, coming to you now, how would you allocate your investment between domestic and international investments and what macro events are you keying on? [00:06:03] Chris Ferrarone: Yeah, you know, we talked before about the high concentration in global equity markets and that that high concentration really leads us to want to add diversification to global equity portfolios. So that for us means maintaining an exposure to global equities. It's not a time you want to put all your eggs in one basket, whether that's the US equity market, whether that's semiconductors, for example. And so we think that maintaining that international exposure is important here and look for additional sources of diversification where you can. It can be from owning high quality companies. It can be dividend strategies, which can not only diversify an equity portfolio, but can add some income while you wait. There's a host of things that fall into that equity diversification bucket. But certainly on the international side, when we're thinking about US versus international, it's maintaining that broad exposure. And in terms of, you know, the second part of that question about the macro issues that we're looking for, look, this market is right now, there's really two big things that are the focus. First is inflation. And, you know, there's a lot of moving parts, as you know, we've discussed here. And the second, obviously, is around the AI/CapEx cycle. And both of those, again, are things that, you know, lead us to want more diversification in [00:07:33] Speaker 1: our global equity portfolios. Really appreciate you all taking the time to be with us tonight. That is going to do it for our mid-year market outlook. Thank you to our entire Schwab team for their contributions and insights.