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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: I'm looking here at the intellectual combine over at Schwab

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Speaker 2: and I got SMP tech sectors, forward price to sales

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Speaker 2: ratio pushing up against this all time Hi. Thank you

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Speaker 2: Kevin Gordon for that wisdom. Joining us now, Lizzie Saunders

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Speaker 2: is a privilege of working with Kevin Gordon. Lizzy, and

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Speaker 2: you do the best charts on you and you're in Timmer,

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Speaker 2: do the best charts on Twitter today. What's your most

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Speaker 2: important chart that you're putting out for schwab right now?

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Speaker 3: Oh boy, that's a good question. There's so many. I

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Speaker 3: think it's labor market data. I think it's claims, continuing claims,

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Speaker 3: what we see in the monthly jobs report. I think

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Speaker 3: that's the needle mover in terms of Fed policy.

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Speaker 2: Correlate targets earnings this morning and very great disappointment on revenue.

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Speaker 2: Can you coordinate that we correlate that, I should say,

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Speaker 2: with the labor market.

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Speaker 3: Well, you know I don't cover individual stocks, including covering target,

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Speaker 3: but you know you have the earnings story this quarter

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Speaker 3: at the bottom line level has been better than expected.

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Speaker 3: The beat rate, the percent by which companies have beaten,

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Speaker 3: but you've got overall revenue growth down around in line

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Speaker 3: with where inflation is, so it really has exposed the

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Speaker 3: companies that actually do have pricing power and don't have

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Speaker 3: pricing power. In addition, revenue beat rate has been below average.

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Speaker 3: The percent by which companies have beaten on the top

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Speaker 3: line has been below average. So I think this is increasingly,

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Speaker 3: yet again a sign of this bifurcation happening, whether it's

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Speaker 3: between nominal and real, high end consumer and low end

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Speaker 3: consumer services versus the good side, discretionary versus non discretionary,

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Speaker 3: and I think there's a reason why the consumer discretionary

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Speaker 3: sectors been performing poorly, as we're now seeing more than

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Speaker 3: just cracks in the facade of the consumer.

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Speaker 1: So, Lizane, I guess one of the key issues here

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Speaker 1: are the earnings that we have seen and again we're

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Speaker 1: going to another big one after the close tonight with Nvidia.

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Speaker 1: Have they been strong enough to support this big move

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Speaker 1: up and equity valuations that we've seen since October.

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Speaker 3: Well, you've got about I think the blended growth rate

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Speaker 3: right now is eleven percent. That's inclusive of the companies

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Speaker 3: that have yet to report, and that is well better

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Speaker 3: than what was expected at the beginning of reporting season.

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Speaker 3: That's getting there, but I think earnings do need to

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Speaker 3: continue to surprise on the upside because last year's strengthened

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Speaker 3: the market was all multiple expansion because you didn't have

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Speaker 3: much in the way of earnings growth. So I think

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Speaker 3: the earnings do have to play catch up. Obviously, the

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Speaker 3: report out today is incredibly important, not just psychologically, which

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Speaker 3: we know it's going to be important psychologically, but if

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Speaker 3: you look at the overall tech sector, the earnings growth

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Speaker 3: rate drops from about twenty four percent or so twenty

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Speaker 3: three to twenty four percent down to less than eleven

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Speaker 3: excluding what is expected for Nvidia, So it is it

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Speaker 3: is obviously the poster child, but that has been the

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Speaker 3: support for the tech sector, which is the overall support

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Speaker 3: for a higher valuation level. If you look around the world,

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Speaker 3: one of the mistakes that investors make is they do

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Speaker 3: valuation comps country to country, region or region without taking

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Speaker 3: into consideration what are the underlying drivers of the local economy.

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Speaker 3: And when you have more of an information tech based economy,

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Speaker 3: that is support of all LSEQL of a higher valuation backdrop.

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Speaker 3: The last thing I'd say is inflation as a backdrop

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Speaker 3: for valuations is important, maybe not coinstantly. The sweet spot

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Speaker 3: in terms of historical valuations being supported at a higher

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Speaker 3: level has been in and around that two percent inflation zone.

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Speaker 3: We're obviously not there yet, even if we're directionally heading

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Speaker 3: in the right way.

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Speaker 1: Liziane, what are some of the the sectors that screen

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Speaker 1: well for you and your team here?

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Speaker 3: Yeah, so we relaunched Schwab sector views at the beginning

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Speaker 3: of the year after a two year hiatus for a

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Speaker 3: whole variety of reasons, and we haven't had any change

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Speaker 3: in terms of the sectors on which we have outperform

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Speaker 3: ratings since the beginning of the year. So it's financials, materials,

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Speaker 3: and energy. Obviously a very cyclical bias in terms of

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Speaker 3: where our outperforms are. The two underperforms are reates, maybe

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Speaker 3: no surprise given the problems in commercial real estate, and

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Speaker 3: then as we already touched on consumert discretionary, the rest

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Speaker 3: are in that neutral category.

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Speaker 2: Well is how do you manage a bull market across

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Speaker 2: the kitchen table selling main go away that didn't work out?

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Speaker 2: There was a great chart. I don't know if Young

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Speaker 2: Gordon added at Schwab, but you know, it's like we're

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Speaker 2: getting back to you know, two thousand and six, ownership

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Speaker 2: of equities sixty some percent, whatever the number is, it's

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Speaker 2: really great. We're all in on this market. How do

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Speaker 2: you manage the emotion of a bull market on a

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Speaker 2: kitchen table over a beverage of.

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Speaker 3: Pace, You know, Tom, that's an interesting question because you know,

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Speaker 3: household exposure to equities is a behavioral measure of sentiment,

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Speaker 3: for lack of a better word. But you've got attitudinal

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Speaker 3: measures of sentiment. And one of the interesting things that

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Speaker 3: has occurred in the last couple of years really in

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Speaker 3: this sort of post COVID bear market cycle, is that

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Speaker 3: you get much bigger swings in the attitudinal measures of

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Speaker 3: sentiment than you do in the behavioral measures. So if

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Speaker 3: you look at just AAII American association of individual investors,

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Speaker 3: you can see pretty big moves in a very short

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Speaker 3: period of time, up in percentage of bowls, up in

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Speaker 3: percentage of bears depending on the new year term wiggles

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Speaker 3: in the market. But you haven't seen much movement in

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Speaker 3: that invested exposure piece of it. So I think that

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Speaker 3: there is some complacency out there as measured by the

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Speaker 3: behavioral measures, but those attitudinal measures are swinging much more

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Speaker 3: quickly in this environment.

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Speaker 2: What do you see at Schwab What is cash doing well?

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Speaker 3: I think for a lot of investors, cash is earning income,

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Speaker 3: so you've got income and fixed income. Again. That's why

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Speaker 3: I push back on this notion that the six trillion

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Speaker 3: dollars in money market funds is just sitting there ripe

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Speaker 3: to jump into the equity market. I think that's probably

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Speaker 3: fairly sticky, and I think it's great comfort, particularly for

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Speaker 3: more conservative or older investors that had to stretch for

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Speaker 3: yield and move out the risk spectrum, to not have

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Speaker 3: to do that. You've got implications for within the equity side,

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Speaker 3: especially areas like dividend stocks that will increase in attractiveness

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Speaker 3: depending on what yields are doing. But I think a

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Speaker 3: lot of that that sort of cash money is fairly

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Speaker 3: sticky because it's earning a nice yield.

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Speaker 2: At this point, Lizzen, it was great having your assistant

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Speaker 2: Kevin Gordon on, but you know he failed in one.

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Speaker 3: Oh he's more than that. But yeah, I love that interview.

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Speaker 3: Well done.

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Speaker 2: We were coming out of it and I said to

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Speaker 2: him casually, I said, let's play some Nickelback. He did

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Speaker 2: know who Nickelback was. The young Lawd did not know

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Speaker 2: who Nickelback was.

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Speaker 3: I taught him, well, he knows who led Zeppelin is,

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Speaker 3: so you.

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Speaker 2: Better know that if it was to catch a paycheck.

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Speaker 2: Lizzie Saunders working with the great Kevin Gordon and Schwab.

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Speaker 2: Thank you so much. I can't say enough