Time to use volatility to rebalance within equities, says Schwab's Omar Aguilar

Market Overview - The major index headlines may not fully reflect the underlying market dynamics, with significant movements occurring beneath the surface since mid-September [2] - There has been a lot of volatility and unwinding in momentum trades, which have been tracked throughout the year [2][3] - The concentration in mega-cap stocks has contributed to the stability of the major indices despite the volatility [3] Economic Outlook - The macroeconomic picture remains resilient and strong, with potential tailwinds that could accelerate the economy into next year [4][5] - Factors such as fiscal spending, monetary policy easing, and deregulation may enhance capital expenditure, particularly in AI-related sectors [5] - A stable labor market and inflation picture could foster a more bullish market sentiment [5] Investment Strategy - Investors are encouraged to rebalance their portfolios, moving away from high exposure to momentum stocks [6] - There is a recommendation to increase allocation to the middle part of the yield curve in fixed income, anticipating lower interest rates [6] - Maintaining high-quality investments is advised due to current volatility and low historical credit spreads [7] Equity Market Focus - It is suggested to reduce exposure to mega-cap stocks and consider non-cap weighted strategies [8] - Investors should focus on profitable companies, particularly within the Russell 2000 index, which contains many firms that do not generate earnings [9] - Careful stock selection is crucial for identifying companies with potential earnings growth for the upcoming year [9]