More Records Above Amid Warning Signs Below

Every morning before the opening bell, the Schwab Market Update sets the stage for the day ahead, covering key market movers, economic developments, and emerging themes. Each edition includes "Three things to watch," and Thursdays feature a weekly section, "Crypto currents." This recap revisits select items for those who may have missed them, helping traders head into the weekend better informed.

The last two weeks saw the S&P 500 Equal Weight Index (SPXEW) lead the S&P 500 Index (SPX) as investors rotated away from chips and into areas like industrials and financials, which are less heavily weighted in the SPX. The equal-weight index weighs all components equally rather than by market capitalization. But the start of the week featured a shift in trading from this recent pattern. Chips grabbed the baton again Monday to lead the way, helped by Reuters reporting that Broadcom (AVGO) would extend a deal with Apple (AAPL) to provide custom chips through 2031. Still, unless tech fully recharges, it could be difficult for major indexes to achieve new highs. That might set up a choppy pattern where indexes pivot around the mean as investors position themselves ahead of earnings season, which starts in earnest with the biggest banks next week. Tuesday's struggles for Samsung in spite of solid earnings might be worth noting ahead of earnings reports from U.S. tech firms later this month.

With stock markets near record highs, it should come as little surprise that the number of millionaires in the U.S. grew last year. In fact, about 440,000 Americans joined the ranks of millionaires, bringing the total to about 58 million, or nearly 9% of U.S. adults, according to UBS's annual Global Wealth Report. But give the housing market its due also. In fact, while liquid assets account for 47% of personal net wealth in the U.S., owner-occupied property represents the single-biggest asset for most people worldwide with $1 million-$5 million (in dollar terms)—a cohort that makes up the "vast majority of the world's millionaires," UBS said. Spare a thought for the Japanese, though. Japan was the only country whose ranks of millionaires with $5 million or less declined. The main culprit, according to UBS, was the protracted decline of the yen versus the U.S. dollar.

Volatility remained relatively subdued this week despite the tug-of-war between tech and the rest of the market. In fact, barring a brief jump above 18 on Wednesday, the Cboe Volatility Index (VIX) hovered just a few points above its year-to-date lows—even as the U.S.-Iran ceasefire appeared to crumble. Looking ahead, VIX futures trace a higher path toward 18 by September and approach 20 by October. The mid-week VIX rally likely reflected renewed hostilities between the U.S. and Iran, but looking down the road, even an end to hostilities won't necessarily calm volatility. Investors are concerned about potential central bank rate hikes and possible choppiness this fall approaching the U.S. mid-term election. If the futures market is right, those who think volatility is cheap now may not see it much cheaper. When the market appears weak, investors often purchase more options as a form of protection, raising implied volatility.

As bitcoin languishes just above its bear market low, the long wait for a catalyst continues. It's worth considering how story and momentum can drive prices for months or even years, with momentum often relegating narrative to the back seat, particularly in the later stages of a bull run. But for nonproductive assets like bitcoin and gold, especially, it can take what seems like forever for markets to recover once that type of momentum breaks. Look at gold, which has lost about a fifth of its value over the past six months after a run of record highs over the previous two years. The fundamentals haven't really changed. Ditto for bitcoin. Debasement is still a thing, right? So why isn't bitcoin catching a bid? Absent any earnings reports, everyone's waiting for a catalyst, a narrative to emerge that will spark a rally. Meanwhile, bitcoin treasury company Strategy (MSTR), dubbed the "buyer of last resort," has turned seller, unloading an estimated $216 million of bitcoin last week, betraying founder Michael Saylor's "never sell" pledge. Not the narrative the bitcoin bulls were seeking.

With major market indexes surging this year, some investors have begun leaning on margin to chase additional upside. Debit balances in securities margin accounts hit a record $1.42 trillion in May, according to FINRA data. That's up 53.7% from a year ago. Nathan Peterson, director of derivatives research and strategy at the Schwab Center for Financial Research (SCFR), said the pace of margin balance growth is evidence of some "speculative excess." Some of this leverage may have been wrung out after the recent correction in a few concentrated areas of the market, like memory makers in the AI infrastructure cohort. However, it's worth noting that margin debt has surged around past market peaks, including in 2000 before the dot-com bubble burst and in 2007 as the Great Financial Crisis was coming to a head. High margin debt doesn't necessarily indicate an imminent market selloff. It can sit near record highs for extended periods while bull markets rage on. Still, this speculative excess does make the market more vulnerable if stocks begin to drop. When prices fall, investors with excessive margin can breach maintenance requirements, leading brokers to force sales that can push prices even lower in a deleveraging cascade. In other words, high margin debt may not signal a market top, but it can act as an accelerant when markets begin to correct.