Investors should rebalance within equities amid volatility – Schwab’s Omar Aguilar

[Investment portfolio. Diversification and asset allocation. Investor rebalancing the portfolio to manage exposure.]
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Schwab Asset Management CEO and CIO Omar Aguilar suggested investors should rebalance their portfolios amid recent market volatility, noting that major index headlines “don’t tell the full story” of market movements.

In an interview with CNBC, Aguilar highlighted significant volatility beneath the surface of the market indexes (SP500 [https://seekingalpha.com/symbol/SP500]), (COMP:IND [https://seekingalpha.com/symbol/COMP:IND]), (DJI [https://seekingalpha.com/symbol/DJI]), describing a process of “momentum trades” unwinding that has been occurring since September.

“We have seen a lot of movement under the surface,” Aguilar said. “We have been tracking these momentum trades the whole year, basically going through a lot of volatility and in certain way unwinding.”

He attributed the relative stability of major indices to the concentration in mega-cap stocks.

Despite recent market turbulence, Aguilar remains optimistic about the broader economic picture. He pointed to several potential tailwinds that could reaccelerate the economy in the coming year, including fiscal spending, monetary policy easing, and deregulation that would “continue to just accelerate the capital expenditure cycle” already observed in AI-focused companies.

For fixed income investments, Aguilar recommends increasing duration to the middle part of the yield curve while maintaining high quality investments.

“We’re also encouraging clients to stay up in quality. Given the volatility we’re seeing, we have seen low historical credit spreads, this is the opportunity for them to start staying at higher quality level,” he said, cautioning against moving into high yield markets due to increasing defaults.

Regarding equity markets, Aguilar suggests pivoting to non-cap weighted strategies and reducing exposure to mega-caps. He specifically warned about companies in the Russell 2000 (IWM [https://seekingalpha.com/symbol/IWM]) that don’t generate earnings, emphasizing investors must be “very critical in trying to pick those stocks that are in the potential for increasing their earnings growth going into next year.”

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