Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Les Anne so Ander's chief investment strategist at Charles Schwab Lazan,
Speaker 2: thanks so much for joining us here. We're kind of
Speaker 2: getting into the teeth of the earnings here. We had
Speaker 2: the banks, we're having some tech companies today, we've got
Speaker 2: some energy companies reporting. It seems like earnings are pretty solid.
Speaker 2: Is it enough to support this market?
Speaker 1: Liz Well, it already has done a lot to support
Speaker 1: the market, and that's because you not only have seen
Speaker 1: the progression since we've been in reporting season of rising
Speaker 1: estimates for the quarter, you've had big upward revisions to
Speaker 1: calendar year twenty twenty six numbers. I guess the only
Speaker 1: rub to that is that the boost in expectations is
Speaker 1: very concentrated. So you've gotten a boost for calendar year
Speaker 1: twenty six from the energy sector, but tech is really
Speaker 1: where the story has been. And I guess the only problem,
Speaker 1: if you had to nitpick this smoove higher, is that
Speaker 1: there's con centration in terms of that tech earnings increase,
Speaker 1: largely driven by Broadcom, Micron and then the SEMIS. If
Speaker 1: you're going to go at the industry level, so a
Speaker 1: little bit of narrowness.
Speaker 3: Do you want to see more breath though in the
Speaker 3: rally in the market rallies that we've been seeing, Lazan, Yeah.
Speaker 1: So you know, in a normal course of a corrective phase,
Speaker 1: you go through the correction, then you have a relief rally.
Speaker 1: If that doesn't have a big breath thrust, you often
Speaker 1: retest and then move higher again. We didn't quite get
Speaker 1: the breath thrust. So SMP sitting at an all time
Speaker 1: high right now, but only seven percent of the index
Speaker 1: members are at fifty two week highs, and it's only
Speaker 1: fifteen percent of the index that's even just at a
Speaker 1: four week high. So we're again we're developing a little
Speaker 1: bit of that concentration problem, and it would be a
Speaker 1: better backdrop for the market medium to longer term if
Speaker 1: we had some better breath not yet, Lezan.
Speaker 2: I guess late last year, maybe October November, we started
Speaker 2: to see a little bit of a rotation in the
Speaker 2: market out of some of those multiple growth tech names
Speaker 2: into some more value maybe smaller MidCap as well. Was
Speaker 2: that just a short term trade or does that have
Speaker 2: some legs? Do you think?
Speaker 1: I think rotation has some legs, And we've been seeing
Speaker 1: that in earnest going back to last summer, the recent
Speaker 1: the latter part of the rally that we have recently
Speaker 1: had was concentrated actually back in some of those you know,
Speaker 1: fan favorites from the twenty twenty one periods, so the
Speaker 1: meme stocks and heavily shorted stocks, retail favorites, quantum computing.
Speaker 1: That's given back a little bit more recently. But I
Speaker 1: think these rapid fire rotations is the name of the game.
Speaker 1: It helps to explain why even though at the index level,
Speaker 1: the S and P five hundred did not have a
Speaker 1: full ten percent correction from a maximum drawdown standpoint, the
Speaker 1: average member within the SMP has had a draw down
Speaker 1: of twenty percent. That is bear market level. It's just
Speaker 1: happened through churn and rotation, not all at once.
Speaker 3: Lazane, you like GARP as an investment strategy, growth at
Speaker 3: a reasonable price. What's a reasonable price right now? And
Speaker 3: what do you like because you look at some of
Speaker 3: these tech companies, Google, Alphabet's Google. You know now at
Speaker 3: pe of twenty nine? Is that fair? Is that rich?
Speaker 3: How do you view it?
Speaker 1: Well? I look at the market from an overall valuation perspective,
Speaker 1: not necessarily at the individual stock level, because that's not
Speaker 1: what I do. Multiples actually have improved since last summer
Speaker 1: when there was really really heightened concern about lofty multiples,
Speaker 1: and that's because even though we've had this rotation and churn,
Speaker 1: forward earnings estimates have continued to rise. So you got
Speaker 1: the boost to the denominator and the pequation helping bring
Speaker 1: multiples down to a degree. But we're big believers in
Speaker 1: factor based investing, more so even than second based investing,
Speaker 1: or at least applying factors as an overlay to more
Speaker 1: monolithic sector work. And the factors that I think make
Speaker 1: sense here are Garpian nature. You want to look for
Speaker 1: forward earnings growth, you want to look for stability and
Speaker 1: or growth in profit margins, but you want to be
Speaker 1: mindful of not paying exorbitant valuation. So that brings sort
Speaker 1: of the Garb wrapper in when talking about the factors
Speaker 1: of focus for us.
Speaker 2: Lauzanne amid all the geopolitical issues that investors are dealing
Speaker 2: with and the earnings this week, we also had a
Speaker 2: FED meeting this week, and we have a little bit
Speaker 2: of a changing of the guard here. I'd love to
Speaker 2: just get your thoughts on kind of what's happening at
Speaker 2: the Federal Reserve and how that's impacting, if at all
Speaker 2: your outlook here.
Speaker 1: Yeah, so I personally had a little bit of a
Speaker 1: lean toward Powell deciding to stay on. So not a
Speaker 1: massive surprise there, I think, And you know, he well
Speaker 1: stated that until the investigations are truly sort of dead
Speaker 1: and buried, he felt he should stay on. What's also
Speaker 1: interesting about what what happened with the transition is a
Speaker 1: lot of people don't realize that Worsh isn't coming in
Speaker 1: to replace Powell as governor. Worsh replaces Stephen Myron as governor,
Speaker 1: and then we assume gets voted by the FMC into
Speaker 1: the chair position. With Powell staying on, it means that
Speaker 1: the administration or President Trump cannot appoint another governor who
Speaker 1: might be either he could have reappointed tried to reappoint
Speaker 1: Stephen Myron, he would have had to go through another
Speaker 1: confirmation hearing. But what I think is going to be
Speaker 1: most interesting is what does Kevin Worsh change. Does he
Speaker 1: do fewer meetings? Does he not have press conferences after
Speaker 1: every meeting? Are there fewer speakers out there among FED
Speaker 1: members that could have some market impact because we're so
Speaker 1: used to getting just a regular stream of information via
Speaker 1: press conferences, via what I've often joked being the Federal
Speaker 1: Open Mouth Committee. I don't say that in a derogatory way.
Speaker 1: There's just lots of voices out there.
Speaker 3: Hey, Lizen, wanted to get your thoughts on some of
Speaker 3: the ECO data we got this week. You say GDP,
Speaker 3: the headline GDP number of two percent for the first
Speaker 3: quarter doesn't really tell the whole story.
Speaker 1: Why, Well, so you got a jump. You actually had
Speaker 1: a big jump in both imports and exports. The net
Speaker 1: of those two things actually was a slight drag on GDP.
Speaker 1: But what was interesting is that the reason why exports
Speaker 1: jumped had a lot to do with the war and energy,
Speaker 1: but the reason why imports jump had more to do
Speaker 1: with a little bit less terrif uncertainty as it related
Speaker 1: to the Supreme Court ruling. You did see a boost
Speaker 1: to CAPEX. There's still a bit of a bias in
Speaker 1: the CAPEC story to AI, but we're starting to see
Speaker 1: a little bit of a broadening out and then not
Speaker 1: much strength on the consumer side. And I have a
Speaker 1: longer term view that I think I think we could
Speaker 1: see the consumption part of the economy, which is now
Speaker 1: sixty nine percent of GDP, actually slowly trend down. And
Speaker 1: what will catch up a little bit, not in direct
Speaker 1: percentage relative terms, is the business investment spending side of things.
Speaker 1: I think that's going to be a longer term driver
Speaker 1: of the economy than it's been in the past.
Speaker 2: Zan, thank you so much for joining us. We always
Speaker 2: appreciate gating a few minutes of your time. Lysiane Sanders,
Speaker 2: chief investment strategist at Charles Schwap.
Speaker 1: There