Navigating the Rebound: Tactical Positioning in a Post-Soft-Landing World

The U.S. economy has entered a post-soft-landing phase in 2025, marked by uneven growth, policy-driven volatility, and a delicate balance between inflationary pressures and corporate resilience. With GDP growth averaging 1.25% in the first half of the year and the Federal Reserve poised to cut rates in response to a stalling labor market, investors face a unique window to recalibrate portfolios. Charles Schwab's analysis highlights how tactical positioning in equities and high-yield bonds can capitalize on this environment, provided timing, volatility management, and sector selection are approached with discipline.

The Macroeconomic Tightrope

The post-soft-landing scenario is defined by contradictions. While the U.S. economy avoids a recession, it grapples with a 4.2% unemployment rate (a cycle high) and inflation lingering near 3%. Corporate earnings, however, remain robust, with the S&P 500's forward 12-month profit margin hitting an all-time high. This divergence between macroeconomic weakness and corporate strength creates a fertile ground for strategic entry into cyclical assets.

The Federal Reserve's anticipated rate cuts—projected to begin in September—add another layer of complexity. Schwab notes that while lower rates could boost risk assets, the Fed's hands are tied by persistent inflation, which has been exacerbated by tariffs exceeding 15% on key imports. This policy uncertainty means investors must balance optimism about rate cuts with caution about inflation's drag on real returns.

Tactical Equities: Sector Churn and Income Strategies

Equity markets in 2025 have been a study in volatility. No single sector has dominated for more than two weeks in rolling performance metrics, with energy and industrials showing fleeting leadership. Schwab advises a neutral stance across all 11 sectors, emphasizing that policy-driven shifts in trade and labor markets make sector bets inherently risky.

However, Schwab identifies two key opportunities:
1. Income-Focused Option-Selling: With the S&P 500 rebounding from April lows and valuations near cycle highs, strategies like covered calls or cash-secured puts can monetize short-term volatility without requiring directional bets.
2. Earnings Diversification: While the Magnificent 7 (Mag 7) still dominate headlines, Schwab notes early signs of earnings convergence with the broader market. Investors should prioritize companies with resilient margins and exposure to sectors less sensitive to tariffs, such as healthcare or utilities.

Volatility management is critical. Schwab warns that the bond-equity relationship has shifted into a “Temperamental Era,” where rising Treasury yields now often coincide with falling stock prices. This negative correlation complicates traditional asset allocation models, urging investors to hedge with tools like inverse ETFs or sector rotation based on macroeconomic signals.

High-Yield Bonds: A Cautionary Attraction

High-yield bonds have outperformed Treasuries in 2025, supported by 7% average yields and historically low spreads (2.99% as of June 20). Yet Schwab cautions that this performance comes with a warning label. Spreads are near the bottom of their 15-year range, offering limited upside if economic conditions deteriorate.

The firm highlights two risks:
1. Default Rates: The sub-investment-grade default rate remains at 4.3%, consistent with the 20-year average. While this is not a crisis, it underscores the fragility of lower-rated issuers in a slowing economy.
2. Valuation Constraints: Schwab argues that high-yield bonds become compelling only when spreads widen to 4.5%–5%, a level historically correlated with a 90% probability of outperforming Treasuries. At current levels, the risk/reward ratio is skewed.

For investors willing to take on credit risk, Schwab recommends a measured approach: limit exposure to high-yield bonds, prioritize quality within the sector, and maintain liquidity to rebalance as spreads adjust.

Strategic Entry Points and the Road Ahead

The post-soft-landing environment demands a nuanced playbook. Schwab's insights suggest three key principles:
1. Timing: Enter cyclical assets when macroeconomic data confirms a slowdown (e.g., a sustained rise in unemployment or a drop in manufacturing PMI below 50).
2. Volatility Management: Use derivatives and sector rotation to hedge against policy-driven shocks, particularly in industries exposed to tariffs.
3. Sector Selection: Favor sectors with pricing power (e.g., healthcare, tech) and avoid those tied to import-dependent consumer spending.

As the Fed inches toward rate cuts and global growth stabilizes, the window for strategic entry into risk assets will narrow. Investors must act decisively but prudently, balancing the allure of rebounds with the realities of a fragile macroeconomic backdrop.

In this tightrope walk between caution and opportunity, Schwab's framework offers a roadmap: stay diversified, monitor spreads and sector rotations closely, and let macroeconomic data—not market noise—guide tactical decisions. The post-soft-landing era is not a free pass for risk-on bets—it's a test of discipline, timing, and adaptability.