Speaker 1: Bloomberg Audio Studios, podcasts, radio news. We've been bouncing around
Speaker 1: on the equity side of things. It feels like there's
Speaker 1: no real conviction in the trade. But I want to
Speaker 1: see what Lazanne Saunders has to say about that.
Speaker 2: Yeah, very pleased to have her back with us. She
Speaker 2: is chief investment strategist at Charles Shaw and she joins
Speaker 2: us from Florida. Lasanne, How are you.
Speaker 3: I'm good. How are you too?
Speaker 2: Yeah, we're doing pretty well. We're doing pretty well. We're
Speaker 2: not in sunny Florida, but it is kind of jealous.
Speaker 2: It's still sunny up here.
Speaker 3: Come on down.
Speaker 2: Yeah, We're happy, happy, especially in the winter. We'd love to.
Speaker 2: I want to talk a little bit about some of
Speaker 2: the stuff you sent our producer Paul ahead of time,
Speaker 2: because I do find it interesting given that you argue
Speaker 2: that the pullback that we've seen just in the last
Speaker 2: couple of weeks, last two days nowith standing, has kind
Speaker 2: of masked some underlying declines that we've seen take place
Speaker 2: in some of the major indices. Talk a little bit
Speaker 2: about what you're looking at.
Speaker 3: Sure, So there has been this focus just on the
Speaker 3: recent weakness and the five percent or so pullback that
Speaker 3: we saw in the S and P and the NASA,
Speaker 3: as if that was the only underlying pressure. But the
Speaker 3: reality was, even when the market, the S and P,
Speaker 3: the NASDAK were at our near all time highs, you
Speaker 3: had had a lot of churn under the surface. As
Speaker 3: of for instance, using the Nasdaq as admittedly the most
Speaker 3: extreme example, again you haven't had more than a five
Speaker 3: percent draw down from a year to date high at
Speaker 3: the index level. However, the average member within the Nasdaq
Speaker 3: has had a maximum draw down on average of thirty
Speaker 3: two percent, So that's bare market level declines. It just
Speaker 3: happened through a process of rotation and churn. That's not
Speaker 3: a bad way to correct. Sentiment access is correct concentration access.
Speaker 3: I think probably most investors would choose a rotational correction
Speaker 3: as opposed to the bottom falling out all at once.
Speaker 3: But that's the real story. Is you have to peel
Speaker 3: kind of a layer of the onion back beyond just
Speaker 3: the index level changes.
Speaker 1: Is that largely some of the NASDAK names or the
Speaker 1: broader market overall.
Speaker 3: Was that it's mostly the Nasdaq. In terms of that
Speaker 3: kind of underlying weakness, I think it's about twenty five
Speaker 3: percent maximum drawdown on average for members within the Russell
Speaker 3: two thousand, so clearly it's the smaller cap. It's only
Speaker 3: about twelve percent for the S and P five hundred,
Speaker 3: So there's definitely been weakness heading down the cap spectrum
Speaker 3: into where you have the most interest rates sensitivity, the
Speaker 3: nonprofitable zombie companies. So that's that's where the pressure has
Speaker 3: been most acute.
Speaker 1: So what does that say to you that there's opportunity
Speaker 1: for room to the upside or how do you see?
Speaker 1: And I feel like you can't think about that without
Speaker 1: thinking about, Okay, what ultimately the FED may or may
Speaker 1: not do, as the expectations around rate cuts have come
Speaker 1: down dramatically.
Speaker 3: Yeah, so I think yields have been more in the
Speaker 3: driver's seat for what the market has done versus just
Speaker 3: expectations around FED policy. It's kind of a parlor game
Speaker 3: that everybody's playing. Now, you know, when will they start
Speaker 3: how many cuts? And they're data dependent, so the data
Speaker 3: is going to dictate that. But in the meantime, the
Speaker 3: big move down in yields started the to October last
Speaker 3: year to the earlier in the year low of three
Speaker 3: point eight percent. That was a huge tailwind for the
Speaker 3: overall market for small caps, and then the move up
Speaker 3: initially really hurt small caps because that's where there's greater
Speaker 3: interest sensitivity, but then more recently some of the larger names.
Speaker 3: I think the leadership that has been dominant in the
Speaker 3: past month or so will probably restart after we go
Speaker 3: through this choppy phase, and that's in areas like financials
Speaker 3: and energy and materials. That doesn't mean there aren't still
Speaker 3: opportunities and everybody's favorite sectors like tech and communications services,
Speaker 3: but I think that cyclical leadership has got legs.
Speaker 1: Is that financials, energy, materials, I'm trying to think how
Speaker 1: to read that. Is that because there's economic activity? Is
Speaker 1: that because for financials a higher rate environment can mean
Speaker 1: good things? Is energy because of geopolitics?
Speaker 3: Yeah, I mean they are individual reasons. You've got obviously
Speaker 3: geopolitics and oil. With energy, you've got oversold conditions that
Speaker 3: developed obviously in financial with last year in the MIDDI
Speaker 3: banking crisis, materials as a play on commodities. But broadly
Speaker 3: I think it does reflect at least some sign of
Speaker 3: improving global growth, and you know, really the kind of
Speaker 3: growth trio of sectors, the tech, communication services, consumer discretionary
Speaker 3: that house the Magnificent seven. They've almost become this era's
Speaker 3: defensive type names. And I think given the stability and
Speaker 3: strengthen the economy, that we finally saw some money shift
Speaker 3: to those more classic cyclicals. And again we think that
Speaker 3: that has some legs.
Speaker 1: You know, it's interesting. I was looking at some of
Speaker 1: the I think you have some of the data. Was
Speaker 1: a German confidence or consumer confidence number that came in stronger.
Speaker 1: Maybe today, I feel like there's been some news coming
Speaker 1: in slowly out of Europe that maybe things you know,
Speaker 1: are not as bad. And I do wonder, at Leasanne,
Speaker 1: if we are setting ourselves up, maybe even China, could
Speaker 1: they possibly could it be this year that finally we
Speaker 1: see some significant momentum. Certainly the numbers seem to suggest it,
Speaker 1: despite the skeptics, But could we We've been kind of
Speaker 1: ruling all of this out and saying the US is
Speaker 1: the best game in town. But if we get more
Speaker 1: global growth, as the IMF has suggested, you know, could
Speaker 1: that be really a boom if you will, certainly to
Speaker 1: the global equity story.
Speaker 3: So it's hard to envision a boom condo scenario, especially
Speaker 3: maybe that's China given. Yeah, But you know, Carol, the
Speaker 3: way you asked the question initially, I think you use
Speaker 3: some important words, which is less bad. We have to
Speaker 3: remember that, you know, when it comes to data, economic data,
Speaker 3: earnings data, whatever it is, and market behavior. It's human
Speaker 3: nature to think of economic data, earnings data in good
Speaker 3: versus bad, strong versus weak, but better or worse tends
Speaker 3: to matter more than good or bad. And it's just
Speaker 3: those inflection points when things stop getting worse and start
Speaker 3: getting better that can be the launch point for sector
Speaker 3: changes in terms of where leadership is better market performance.
Speaker 3: You don't necessarily need to see a significant acceleration, just
Speaker 3: that inflection from bad to less bad to maybe getting better.
Speaker 2: So we're all eyes on meta in just a few minutes, Lizen,
Speaker 2: and I'm wondering about what this could tell us about
Speaker 2: the greater economy if it's any sort of bell weather
Speaker 2: to you. Given the vassive, vast majority, I can say
Speaker 2: all of the revenue comes from advertising at this point,
Speaker 2: a lot of small business advertising as well, and how
Speaker 2: you're thinking about big tech earnings as we sort of
Speaker 2: get into the swing of earning season right now.
Speaker 3: So, as you know, I don't cover individual stocks, not
Speaker 3: meta any of them. I think the most important aspect
Speaker 3: to the earnings, particularly this week some of the big
Speaker 3: high profile names, is not just about okay, did they
Speaker 3: beat the consensus estimate for the quarter, but the differential
Speaker 3: between top line growth, bottom line growth, maintenance of profit margins,
Speaker 3: and importantly the outlook, because back to the better or
Speaker 3: worse matters more than good or bad. You know, there's
Speaker 3: been so much enthusiasm for maybe now a subset of
Speaker 3: the magnificence set, and the data is likely to continue
Speaker 3: to be really good, but we're starting to appropriately ask
Speaker 3: the question has the expectation bar, either figuratively or literally
Speaker 3: gotten set too high? And that I think was part
Speaker 3: of the reason for some of this volatility. So that's
Speaker 3: what I'm paying attention to this weekend next.
Speaker 1: So great to check in with you again, Lezambi. Well,
Speaker 1: Lizanne Sander's chief investment strategist at Charles Schwab, joining us
Speaker 1: from Naples, Florida,