Schwab Market Perspective

May 15, 2026 Liz Ann Sonders Kevin Gordon Collin Martin Michelle Gibley Chris Ferrarone

Our point of view on recent market and economic activity.

First quarter 2026 earnings were stronger than expected and we think that there might be continued strength in the second quarter, unless there is a major macro shift. On the global front, emerging market stocks have experienced a rebound recently, largely driven by the growth of artificial intelligence (AI) use and infrastructure buildout. For fixed income, we think preferred securities, or preferreds, might offer value to income-driven investors during market volatility, but they come with high-interest rate risk and potential volatility due to the ongoing conflict in the Middle East.

Here are the month's highlights from our experts:

U.S. stocks and economy: First quarter 2026 earnings

First quarter 2026 earnings momentum is materially stronger than expected. S&P 500 earnings growth is tracking near 28% year over year with beat rates above historical medians, supporting expectations for potential continued strength into the second quarter absent a major macro shift.
Revisions are concentrated rather than broad-based: Technology and Communication Services (plus select Consumer Discretionary drivers) account for a disproportionate share of upside, and the "Magnificent 7" (Mag7) continue to outgrow the other 493 S&P 500 companies by a wide margin, delaying the long-anticipated "convergence trade."
Risk is rising even as the scorecard looks good. Miss penalties are unusually severe and margins are near cycle highs, leaving less cushion if growth slows or costs reaccelerate—conditions that also increase rotation and mean-reversion risk across sectors.

Global stocks and economy: AI and emerging market stocks

The Iran war and resulting energy shock introduced both growth risks and inflation pressure, disrupting the supportive environment for emerging-market (EM) economies. However, EM stocks have rebounded to new highs. Despite some industry-specific growth opportunities, we believe it's not the time to be overweight EM.
Market performance has tended to favor a narrow set of sectors and companies. Although the MSCI Emerging Market Index is expected to show rapid earnings growth in 2026, it seems to be attributable to an outsized impact of a few semiconductor companies.
The growth in the use and buildout of AI infrastructure could continue to drive earnings, but there are market and economic slowdown risks associated with dependence on the performance of a narrow group of companies.

Fixed income: Can preferreds offer value amid volatility?

Yields for preferred securities, a type of hybrid investment that shares characteristics of both stocks and bonds, have risen recently, which might make them more attractive to income-oriented investors.
Preferreds in the ICE BofA Core Plus Fixed Rate Preferred Securities Index tend to have higher credit ratings than high-yield bonds, but lower credit ratings than investment-grade corporate bonds.
Preferreds can also potentially offer tax advantages. Many, but not all, preferred stocks pay qualified dividends that are subject to lower tax rates than traditional interest income. But it's important for investors considering preferreds relative to other investments to consider what type of account they'll be held in—taxable or tax-advantaged.
Preferreds tend to be a bit more volatile than corporate bonds, so investors need to be prepared to ride out the potential ups and downs to earn those high-income payments.

This material is intended for general informational and educational purposes only. This should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decisions.

All expressions of opinion are subject to change without notice in reaction to shifting market, economic or political 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.

Past performance is no guarantee of future results.

Investing involves risk, including loss of principal.

Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed income investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications, and other factors. Lower rated securities are subject to greater credit risk, default risk, and liquidity risk.

Preferred securities are a type of hybrid investment that share characteristics of both stock and bonds. They are often callable, meaning the issuing company may redeem the security at a certain price after a certain date. Such call features, and the timing of a call, may affect the security’s yield. Preferred securities generally have lower credit ratings and a lower claim to assets than the issuer's individual bonds. Like bonds, prices of preferred securities tend to move inversely with interest rates, so their prices may fall during periods of rising interest rates. Investment value will fluctuate, and preferred securities, when sold before maturity, may be worth more or less than original cost. Preferred securities are subject to various other risks including changes in interest rates and credit quality, default risks, market valuations, liquidity, prepayments, early redemption, deferral risk, corporate events, tax ramifications, and other factors.

High-yield securities and unrated securities of similar credit quality (junk bonds) are subject to greater levels of credit and liquidity risks and may be more volatile than higher-rated securities. High-yield securities are considered predominately speculative with respect to the issuer’s continuing ability to make principal and interest payments.

International investments involve additional risks, which include differences in financial accounting standards, currency fluctuations, geopolitical risk, foreign taxes and regulations, and the potential for illiquid markets. Investing in emerging markets may accentuate this risk.

There are risks associated with investing in dividend paying stocks, including but not limited to the risk that stocks may reduce or stop paying dividends.

Diversification and asset allocation, strategies do not ensure a profit and do not protect against losses in declining markets.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.

Indexes are unmanaged, do not incur management fees, costs, and expenses and cannot be invested in directly. For more information on indexes, please see schwab.com/indexdefinitions.

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