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US-based brokerage Charles Schwab projects that inflation remains sticky in the second half of 2026, with the fed funds futures market now pricing in a rate hike rather than a rate cut.
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As market risk premium reaches 99 percent, highest level since 1999, Charles Schwab advised investors to adopt a diversified investment strategy that spans multiple regions and industries in the second half of the year.
In a 2026 mid-year US market outlook, the retail investing behemoth noted that energy prices and artificial intelligence-driven capital expenditures are adding to already elevated core services inflation, while conflict in Iran has pushed energy prices higher.
Along with energy shocks and geopolitical risks pushing up the consumer price index and personal consumption expenditure, the firm warns that higher inflation and policy uncertainty might lead to more frequent volatility.
Terence Kwok Ming-san, senior vice president and financial consultant at Charles Schwab Hong Kong, notes that markets are also likely to scrutinize Fed chairman Kevin Warsh closely, and that his tenure could bring greater market volatility, given his known skepticism toward the Fed's balance-sheet footprint and his preference for more disciplined policy communication in the US.
Jacky Lam Cheung-kit, senior vice president and financial consultant at Charles Schwab Hong Kong, highlighted that the Al investment cycle remains one of the primary drivers of global economic growth, but is also one of the market's most significant sources of concentration and dependency risk.
Lam added that the market may have to adjust expectations if returns on Al investment disappoint, capital spending slows and financing conditions tighten.
Charles Schwab expects the 10-year US Treasury yield to hover between 4 percent and 4.5 percent in the short term, with upside risk outweighing downside risk. Schwab currently favors a below-benchmark average duration, and advises investors not to remain solely in very short-term investments.
Wall Street analysts now project S&P 500 earnings growth of 25 percent for the full calendar year, up from less than 16 percent at the beginning of the year.
Moreover, the Schwab Trading Activity Index™ (STAX), a proprietary behavior-based index designed to indicate retail investors’ sentiments, increased to 59.12 in June, up from 55.08 in May, reaching a four-year high.
June data indicated that Schwab clients' net buys outpaced net sells by more than two-to-one, with information technology leading the sector-level net buying, followed by communication services and consumer discretionary.
