The equity market is not behaving irrationally. It is behaving selectively. That distinction matters for how advisors frame current conditions to clients navigating elevated oil prices, a rangebound Treasury market, and a stock market whose earnings story is increasingly concentrated in a handful of names.
On a recent episode1 of Charles Schwab's On Investing podcast, chief investment strategist Liz Ann Sonders and fixed income strategist Collin Martin lay out the mechanics driving both equity and bond markets — then hand the microphone to Schwab Asset Management's Inga Rachwald for a grounding conversation on diversification as discipline, not just theory.
Earnings Concentration: Three Companies, 70% of the Story
The headline on equities is not the Iran conflict or oil prices. It is concentration — in performance, and now in earnings.
Sonders notes that the sectors generating the most meaningful upward revisions are tech and communications, and the math behind those revisions is stark. "Just three companies alone — just Alphabet, Amazon, and Meta — explain about 70%, in dollar terms, of the increased earnings expectation for calendar year 2026," she says.
That dynamic has consequences beyond index construction. It means that strength in the broader market is partly illusory in terms of breadth, even as it is entirely real in terms of reported results. The energy sector, by contrast, remains under-owned and under-discussed — a sector Sonders flags as potentially interesting on a longer time horizon precisely because of its neglect, though the firm does not currently hold a "wildly favourable view" on it.
The inverse relationship between oil prices and equity performance — a defining feature of the first month of the Iran conflict — has also softened. "We've had days where oil prices have moved higher and the equity market still has fairly strong performance," Sonders observes, attributing the resilience largely to the rotation of investor attention toward earnings season, AI capital expenditure, and the mega-cap tech trade.
The Bond Market: Range-Bound by Design
Martin's read on Treasuries is that current levels are not a mystery — they reflect the environment accurately. The 10-year has held between approximately 4.2% and 4.45% for nearly two months. "That's indicative of a healthy economy," Martin says, framing the spread between the fed funds rate and long-term yields as a signal of orderly, if modest, growth.
The oil-Treasury linkage mirrors what Sonders describes on the equity side: "On days where oil prices rise, you tend to see higher 10-year Treasury yields, based on expected higher inflation down the road." The relationship is directional, not proportional.
On the dollar, Martin notes that its recent retreat toward two-month lows could, under the right conditions, provide a tailwind for local-currency global bond exposures. But he stopped short of changing the firm's outlook, describing the dollar as likely to "trade kind of range bound" absent a material development in the conflict.
Sonders adds the S&P 500 context: with 40% to 45% of index earnings derived overseas, a weaker dollar is structurally beneficial. "Over the long term, you tend to see an inverse correlation between moves in the dollar and S&P earnings, because that index is a bit more global in nature."
Diversification: The Theory Holds, the Benchmark Doesn't
Rachwald's contribution recenters the conversation on first principles — and delivered the episode's most actionable framing for advisors.
Modern portfolio theory is roughly 75 years old, she notes, and its endurance lies in a single innovation over prior frameworks: it accounts for risk, not just return. The practical challenge is that recent market concentration has caused investors — and the industry — to benchmark diversified portfolios against whatever performed best.
"Comparison is the thief of joy," Rachwald says, invoking the well-worn phrase to make a pointed observation: a diversified portfolio's goal is not to outperform a concentrated subset of the market, but to avoid being the worst-performing portfolio while managing risk across a cycle.
The data makes the case clearly. In 2023, the Magnificent 7 returned over 75% while the S&P 500 returned around 26%. But in 2022, the S&P 500 fell 18% while the Magnificent 7 fell 40%. Concentration amplifies in both directions. "Concentrated positions can also be susceptible to sharp downturns as well," Rachwald says.
On over-diversification, Rachwald is equally direct — calling it "absolutely a thing, and it can be a bad thing." Owning too many overlapping funds can dilute returns, create unintended sector concentration, and generate excess costs in strategies that collectively resemble an index.
Her solution framework is goals-based investing: attaching specific portfolios to specific goals with defined time horizons. A two-year home purchase calls for liquidity and conservation. A 20-year retirement horizon supports more risk. The benchmark shifts from a market index to a progress metric. "Are you achieving that goal? How are you tracking toward that goal — versus are you beating a benchmark?"
On non-traditional assets, Rachwald is measured. Cryptocurrencies and alternatives may offer correlation benefits, but both carry meaningful caveats — limited data history and non-standard valuation for crypto; liquidity constraints and reduced transparency for alternatives. "It's not a good or bad conclusion," she says. "It's just an additional checklist attached to each of them."
Key Takeaways for Advisors
Earnings concentration is real and intensifying. Three companies account for roughly 70% of incremental 2026 earnings growth. Advisors should contextualize index performance accordingly.
The oil-market inverse correlation has softened. Equities are no longer trading in lockstep with oil prices. Earnings momentum and AI capex are competing narratives.
Treasuries reflect the environment, not confusion. A rangebound 10-year between 4.2% and 4.45% is consistent with a Fed on hold and trend-level growth — not a signal of dysfunction.
Diversification is not a return strategy — it is a risk strategy. Benchmarking diversified portfolios against concentrated winners distorts their purpose and creates behavioural pressure to abandon them at the wrong time.
Goals-based framing is the antidote to performance envy. Anchoring clients to specific goals with defined time horizons replaces market-relative benchmarks with personal progress metrics.
Over-diversification is under-appreciated as a risk. Excess holdings can dilute returns, obscure concentration, and add cost — all while creating the illusion of discipline.
Footnote:
1 Liz Ann Sonders, Collin Martin. "Concentration Risk Meets Diversification Reality." Schwab Brokerage, 8 May. 2026.
