Download the Schwab app from iTunes®Get the AppClose

  • Find a branch
To expand the menu panel use the down arrow key. Use Tab to navigate through submenu items.

Global Markets Rally, Shrugging Off Fears

Click to show the transcript

RANDY FREDERICK: Global markets are in rally mode, shaking off fears from the Brexit, to terrorist attacks, even an attempted coup d’état. Jeff Kleintop, Schwab’s chief global investment strategist, joins me for the July 26 Schwab Market Snapshot to discuss why the markets are seemingly ignoring these shocking geopolitical events. Welcome back, Jeff.

JEFF KLEINTOPP: Thanks, Randy. It’s always great to be here.

RANDY: So, Jeff, first it was the Brexit, then it was the terrorist attack in France—and even the Turkish political coup—and through all of these events the global markets just seemed to be barely fazed. Have these things just become so common that we’re all just numb to them, or is there something else going on?

JEFF: Well, Randy, I think one of the reasons for the change in how the market’s reacted to these types of events you mentioned is the fact that earnings estimates are back on the rise.

Analysts’ estimates of earnings per share for the global companies in the MSCI World Index bottomed back in late February—they’ve been on the rise since then. And that’s right around when the turnaround in the stock market took place as well. 

And that end of what had been a long downtrend—of lasting about a year and a half in earnings estimates—has really helped to support stocks in the face of these geopolitical developments. 

It’s interesting to note even the so-called fear gauges, like the VIX and the VSTOXX in Europe, are down to some of the lows we’ve seen over the last five years or so, really helping to calm a lot of fears.

RANDY: So you’re saying this focus on earnings is essentially overshadowing these negative events, but that doesn’t always happen, does it?

JEFF: Well, you’re exactly right. We have to keep in mind that this goes both ways. The impact of the trend in earnings estimates, should they roll back over again, isn’t going to leave a lot of buffer there for stocks to be as resilient to these geopolitical risks.

RANDY: So over the past several months the trend in global earnings expectations has actually been increasing. So what is it that’s driving this optimism among the analysts?

JEFF: Well, I think analysts seem to be catching up with surprisingly good economic data, or at least better-than-expected data. 

The rebound in earnings estimates tracks really closely with the positive surprises we’ve seen over the last five months or so in economic data—not that the data’s been great—but better than expected. And that’s forced analysts to also look at their estimates and revise them higher—maybe they’ve been a bit too pessimistic.

RANDY: So if I understand correctly there are reasons for global optimism, but some of the data still seems a bit ambiguous. So what are you expecting going forward with regard to global GDP growth? And will that be sufficient enough to continue to drive higher earnings?

JEFF: Well, you know, the IMF just came out in the past week here with their revised estimates for global growth post-Brexit—and they took down their estimate, not surprisingly, for 2016 and 2017—but only by 1/10 of a percent. So they’re expecting about the same growth this year as last year—that’s 3.1%, and 3.4% next year, so just a little bit of a step up for 2017. 

So while the growth outlook is relatively stable, it remains below average and vulnerable to shocks. And so really without much stronger economic growth, earnings may stabilize. But they’re unlikely to stage a very powerful rebound, so let’s just hope that growth continues to surprise to the upside and continues to support upward earnings revisions.

RANDY: That’s really interesting. I’d like to step back a moment to what you mentioned earlier about the improved earnings outlook that you discussed. Does this trend cover all of the market sectors, or are there specific sectors that maybe still require a little bit of extra caution?

JEFF: You know, it’s very broad, actually, even in Europe, where we had the Brexit vote and a lot of concerns about growth there. We continue to see data come in better than expected and analyst estimates move higher. 

Across countries that’s the case pretty broadly. But across sectors, too, we’ve seen almost all the sectors—eight of 10 sectors, that have seen upward revisions—really the only one that’s showing any downward revision is the financial sector.

And that’s really the case because we’re seeing long-term interest rates continue to come down. Were they to stabilize, we might start to see those estimates turn around as well, and that will be a real plus—if we finally saw the financial sector begin to turn around, it could really help give a second wind to overall estimates. And that’s really the key, and it’s why this is so important for stock market investors to watch. 

A sustained rebound in earnings growth can really provide a second wind for stock markets around the world that may be tiring out as they’ve finally gotten back to all-time highs.

RANDY: Thank you so much, Jeff.  So if I understand this correctly, it sounds like the global story is actually pretty positive overall. 

Listen, if you’ve got questions we would encourage you to call and talk to a Schwab financial professional. If you want to read more from Jeff, you can do that in the Investing Insights section of You can also follow Jeff on Twitter @JeffreyKleintop, and of course you can always follow me on Twitter @RandyAFrederick. We will be back again. Until next time, invest wisely. Own your tomorrow.

Important Disclosures

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. Please note that this content was created as of the specific date indicated and reflects the author’s views as of that date. It will be kept solely for historical purposes, and the author’s opinions may change, without notice, in reaction to shifting economic, business, and other conditions.

Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed. Supporting documentation for any claims or statistical information is available upon request.

Past performance is no guarantee of future results and the opinions presented cannot be viewed as an indicator of future performance.

International investments are subject to additional risks such as currency fluctuation, geopolitical risk and the potential for illiquid markets. 

Indexes are unmanaged, do not incur management fees, costs and expenses, and cannot be invested in directly.

The MSCI World Index
captures large and mid-cap representation across 23 Developed Markets countries. With 1,644 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country.

Chicago Board of Exchange (CBOE) Volatility Index® (VIX®) is an index which provides a general indication on the expected level of implied volatility in the US market over the next 30 days.

VSTOXX® volatility index expresses the fluctuation range expected by the market, that is the implied volatility of the EURO STOXX 50® Index. The VSTOXX® indicates in percentage points which volatility is to be expected for the EURO STOXX 50® Index over the coming 30 days. The basis of calculation for this index is a basket of EURO STOXX 50® Index Options quoted at the money or out the money. 


Thumbs up / down votes are submitted voluntarily by readers and are not meant to suggest the future performance or suitability of any account type, product or service for any particular reader and may not be representative of the experience of other readers. When displayed, thumbs up / down vote counts represent whether people found the content helpful or not helpful and are not intended as a testimonial. Any written feedback or comments collected on this page will not be published. Charles Schwab & Co., Inc. may in its sole discretion re-set the vote count to zero, remove votes appearing to be generated by robots or scripts, or remove the modules used to collect feedback and votes.