Stocks, Bonds Climb as Oil Falls on US-Iran Hopes

Stocks and bonds kicked off the week on a positive note as hopes for diplomatic efforts to end the war in Iran drove oil prices lower, easing inflation anxiety.The advance in equities erased the S&P 500's decline for the month, with a renewed rally in chipmakers also buoying sentiment.Omar Aguilar, CEO and CIO of Schwab Asset Management, joins for a broad look across asset classes for the rest of 2026.

So clients at Schwab are constantly optimistic. I think uh looking at how we have seen and how things have changed over time. You know, concerns still on high inflation, geopolitics um being on top of mind, and in general, you know, valuation on equity seems to be what is driving a lot of activity. But, you know, after a summer, a little bit of slowdown in the summer, um uh clients at Schwab start to pick up their activity. They're still looking for opportunities in risk on assets. Uh and a lot of that is as a result of, you know, our point of view that we see this as an expansion of the cycle as we see high growth economically and as we can see the economy scene being pretty, pretty um pretty good across the board with labor market, even with housing market and consumption particularly, you know, fairly strong.

As we get closer to the end of the third quarter, if you look at the S&P 500, only up around 2.6% so far this quarter as we get toward the end of September and it's been tight in this narrow range for a couple of months now. What do you expect to be a catalyst that can break it out of the range either to the upside or the downside?

Well, earning earnings will will always be a big driver and a big catalyst. You know, if if the trend continues like we saw in the first two quarters, we should expect a little bit of a increase in the overall levels of the market. I think our concerns now is that the breadth of the market is is still fairly low and that's not very healthy for just a bull market. Uh we've seen that there is fewer and fewer stocks that reached their all-time highs and as you said, you know, they seem to be moving in this uh cycle. I think uh uncertainty around monetary policy, uncertainty around, you know, uh elections will maintain the market in sort of more volatile ranges for the next, you know, few months before earnings season starts to kick in and we start to go back to fundamentals.

Well, I'm glad you brought up breadth because there was an equity insight I did on Friday that was actually looking at how more stocks in the S&P 500 were touching those 52 week lows versus highs at the most in almost a year since October of last year. But then if you look at JP Morgan, I mean they're not going to kick off earning season until October 13th. So we still have a few weeks away. So what do you expect to be kind of the driver here for equities the next few weeks?

Well, you know, over over the course of the last, you know, six weeks, you know, we have gone from obviously a lot of attention put into monetary policy. We seem to be a little more clear on what that path is where we believe is going to be a short tightening cycle. We don't expect this to be an extended cycle. So overall, you know, the the attention now goes into trade negotiations, obviously related to what is the price of oil going to do, uh to particularly look at inflation. Most of the discussions and volatility and headlines will be about trade and about what may be the next, you know, potential impact to to GDP.

Uh consumption will be key. We'll continue to see a strength in the consumer. Nominal GDP is expected to stay above 5%, which is great. So overall, I think for the next few weeks, the volatility will be more related to trade-related activity and the potential impact on oil on both equities and bonds.

Talk to us about bonds there, Omar. I can clip some very nice coupons in the treasury market. Um, are you suggesting people take any credit risk above that?

No, we we don't think there is necessary at the moment to go deeper into any credit part. We still like corporates. I think balance sheets are very strong, Paul. Uh we've seen that throughout the last, you know, you know, couple of years and we believe that intermediate part of the corporate, you know, part of the bonds is very attractive, especially in these entry levels are actually pretty good. There is no need to go into high yield or further into credit. I think staying in the corporates, in the treasury, as you said, is it it provide a very good income source and also provides a good diversification for equities. This is not going to be the same as 2022. The reasons why we're at these levels are very different. If you recall back in 2022, the concern was that the correlations between equities and bonds was actually very positive. You know, in this case, we see that both equities and bonds seem to be doing their job.