Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: I'm looking here at the intellectual combine over at Schwab
Speaker 2: and I got SMP tech sectors, forward price to sales
Speaker 2: ratio pushing up against this all time Hi. Thank you
Speaker 2: Kevin Gordon for that wisdom. Joining us now, Lizzie Saunders
Speaker 2: is a privilege of working with Kevin Gordon. Lizzy, and
Speaker 2: you do the best charts on you and you're in Timmer,
Speaker 2: do the best charts on Twitter today. What's your most
Speaker 2: important chart that you're putting out for schwab right now?
Speaker 3: Oh boy, that's a good question. There's so many. I
Speaker 3: think it's labor market data. I think it's claims, continuing claims,
Speaker 3: what we see in the monthly jobs report. I think
Speaker 3: that's the needle mover in terms of Fed policy.
Speaker 2: Correlate targets earnings this morning and very great disappointment on revenue.
Speaker 2: Can you coordinate that we correlate that, I should say,
Speaker 2: with the labor market.
Speaker 3: Well, you know I don't cover individual stocks, including covering target,
Speaker 3: but you know you have the earnings story this quarter
Speaker 3: at the bottom line level has been better than expected.
Speaker 3: The beat rate, the percent by which companies have beaten,
Speaker 3: but you've got overall revenue growth down around in line
Speaker 3: with where inflation is, so it really has exposed the
Speaker 3: companies that actually do have pricing power and don't have
Speaker 3: pricing power. In addition, revenue beat rate has been below average.
Speaker 3: The percent by which companies have beaten on the top
Speaker 3: line has been below average. So I think this is increasingly,
Speaker 3: yet again a sign of this bifurcation happening, whether it's
Speaker 3: between nominal and real, high end consumer and low end
Speaker 3: consumer services versus the good side, discretionary versus non discretionary,
Speaker 3: and I think there's a reason why the consumer discretionary
Speaker 3: sectors been performing poorly, as we're now seeing more than
Speaker 3: just cracks in the facade of the consumer.
Speaker 1: So, Lizane, I guess one of the key issues here
Speaker 1: are the earnings that we have seen and again we're
Speaker 1: going to another big one after the close tonight with Nvidia.
Speaker 1: Have they been strong enough to support this big move
Speaker 1: up and equity valuations that we've seen since October.
Speaker 3: Well, you've got about I think the blended growth rate
Speaker 3: right now is eleven percent. That's inclusive of the companies
Speaker 3: that have yet to report, and that is well better
Speaker 3: than what was expected at the beginning of reporting season.
Speaker 3: That's getting there, but I think earnings do need to
Speaker 3: continue to surprise on the upside because last year's strengthened
Speaker 3: the market was all multiple expansion because you didn't have
Speaker 3: much in the way of earnings growth. So I think
Speaker 3: the earnings do have to play catch up. Obviously, the
Speaker 3: report out today is incredibly important, not just psychologically, which
Speaker 3: we know it's going to be important psychologically, but if
Speaker 3: you look at the overall tech sector, the earnings growth
Speaker 3: rate drops from about twenty four percent or so twenty
Speaker 3: three to twenty four percent down to less than eleven
Speaker 3: excluding what is expected for Nvidia, So it is it
Speaker 3: is obviously the poster child, but that has been the
Speaker 3: support for the tech sector, which is the overall support
Speaker 3: for a higher valuation level. If you look around the world,
Speaker 3: one of the mistakes that investors make is they do
Speaker 3: valuation comps country to country, region or region without taking
Speaker 3: into consideration what are the underlying drivers of the local economy.
Speaker 3: And when you have more of an information tech based economy,
Speaker 3: that is support of all LSEQL of a higher valuation backdrop.
Speaker 3: The last thing I'd say is inflation as a backdrop
Speaker 3: for valuations is important, maybe not coinstantly. The sweet spot
Speaker 3: in terms of historical valuations being supported at a higher
Speaker 3: level has been in and around that two percent inflation zone.
Speaker 3: We're obviously not there yet, even if we're directionally heading
Speaker 3: in the right way.
Speaker 1: Liziane, what are some of the the sectors that screen
Speaker 1: well for you and your team here?
Speaker 3: Yeah, so we relaunched Schwab sector views at the beginning
Speaker 3: of the year after a two year hiatus for a
Speaker 3: whole variety of reasons, and we haven't had any change
Speaker 3: in terms of the sectors on which we have outperform
Speaker 3: ratings since the beginning of the year. So it's financials, materials,
Speaker 3: and energy. Obviously a very cyclical bias in terms of
Speaker 3: where our outperforms are. The two underperforms are reates, maybe
Speaker 3: no surprise given the problems in commercial real estate, and
Speaker 3: then as we already touched on consumert discretionary, the rest
Speaker 3: are in that neutral category.
Speaker 2: Well is how do you manage a bull market across
Speaker 2: the kitchen table selling main go away that didn't work out?
Speaker 2: There was a great chart. I don't know if Young
Speaker 2: Gordon added at Schwab, but you know, it's like we're
Speaker 2: getting back to you know, two thousand and six, ownership
Speaker 2: of equities sixty some percent, whatever the number is, it's
Speaker 2: really great. We're all in on this market. How do
Speaker 2: you manage the emotion of a bull market on a
Speaker 2: kitchen table over a beverage of.
Speaker 3: Pace, You know, Tom, that's an interesting question because you know,
Speaker 3: household exposure to equities is a behavioral measure of sentiment,
Speaker 3: for lack of a better word. But you've got attitudinal
Speaker 3: measures of sentiment. And one of the interesting things that
Speaker 3: has occurred in the last couple of years really in
Speaker 3: this sort of post COVID bear market cycle, is that
Speaker 3: you get much bigger swings in the attitudinal measures of
Speaker 3: sentiment than you do in the behavioral measures. So if
Speaker 3: you look at just AAII American association of individual investors,
Speaker 3: you can see pretty big moves in a very short
Speaker 3: period of time, up in percentage of bowls, up in
Speaker 3: percentage of bears depending on the new year term wiggles
Speaker 3: in the market. But you haven't seen much movement in
Speaker 3: that invested exposure piece of it. So I think that
Speaker 3: there is some complacency out there as measured by the
Speaker 3: behavioral measures, but those attitudinal measures are swinging much more
Speaker 3: quickly in this environment.
Speaker 2: What do you see at Schwab What is cash doing well?
Speaker 3: I think for a lot of investors, cash is earning income,
Speaker 3: so you've got income and fixed income. Again. That's why
Speaker 3: I push back on this notion that the six trillion
Speaker 3: dollars in money market funds is just sitting there ripe
Speaker 3: to jump into the equity market. I think that's probably
Speaker 3: fairly sticky, and I think it's great comfort, particularly for
Speaker 3: more conservative or older investors that had to stretch for
Speaker 3: yield and move out the risk spectrum, to not have
Speaker 3: to do that. You've got implications for within the equity side,
Speaker 3: especially areas like dividend stocks that will increase in attractiveness
Speaker 3: depending on what yields are doing. But I think a
Speaker 3: lot of that that sort of cash money is fairly
Speaker 3: sticky because it's earning a nice yield.
Speaker 2: At this point, Lizzen, it was great having your assistant
Speaker 2: Kevin Gordon on, but you know he failed in one.
Speaker 3: Oh he's more than that. But yeah, I love that interview.
Speaker 3: Well done.
Speaker 2: We were coming out of it and I said to
Speaker 2: him casually, I said, let's play some Nickelback. He did
Speaker 2: know who Nickelback was. The young Lawd did not know
Speaker 2: who Nickelback was.
Speaker 3: I taught him, well, he knows who led Zeppelin is,
Speaker 3: so you.
Speaker 2: Better know that if it was to catch a paycheck.
Speaker 2: Lizzie Saunders working with the great Kevin Gordon and Schwab.
Speaker 2: Thank you so much. I can't say enough