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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: All right, let's get it right to our next guest,

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Speaker 2: because this leads us in perfectly to liz Ane Sanders,

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Speaker 2: chief investment Strategies at Charles Schwab. Liz, what did you

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Speaker 2: take away from the Fed's action this week and particularly

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Speaker 2: as it relates to maybe what they may do in

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Speaker 2: twenty twenty six.

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Speaker 1: Yeah, and good morning to you both. Happy holidays. Obviously,

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Speaker 1: the cut was not a surprise. I don't tend to

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Speaker 1: buck market expectations, especially when they are particularly dominant in

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Speaker 1: one direction or another. We did expect what could be

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Speaker 1: defined as a hawkish cut where they certainly didn't lay

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Speaker 1: out any promises for the glide path going forward, and

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Speaker 1: that's what happened. And just before I came on, you

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Speaker 1: were talking about increasing dissents on the FED. I agree.

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Speaker 1: I think that that is a good thing. I think

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Speaker 1: it also helps to temper some of the concerns about

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Speaker 1: independence of the FED and maybe something that either implicitly

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Speaker 1: or explo powerless supporting that we can hear from lots

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Speaker 1: of voices, and I think it's a reminder that the

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Speaker 1: see in FOMC is committee not share so I think

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Speaker 1: from the standpoint of that amount of uncertainty with regard

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Speaker 1: to FED independence, I think the sense and a wider

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Speaker 1: array of views is a positive. Yeah.

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Speaker 3: And speaking of new voices, Lizen, we're going to get

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Speaker 3: a new FED share. We know this in May. So

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Speaker 3: how do you how are you thinking about the interest

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Speaker 3: rate landscape in twenty twenty six? Are we going to

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Speaker 3: get more? Do you think than that one cut that

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Speaker 3: Powell was talking about this week?

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Speaker 1: Tell me what the data is going to be, and

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Speaker 1: I could give you a pribume an easier way to

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Speaker 1: I mean, when you're a data dependent FED and then

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Speaker 1: you had the effects of the government shutdown, which means

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Speaker 1: we don't We haven't had any official labor market data

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Speaker 1: since the September release. We don't have GDP data, we

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Speaker 1: don't have National income and Product accounts, corporate profit margins data.

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Speaker 1: So I think as we start to get the data,

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Speaker 1: I do think that the FED, as it relates to

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Speaker 1: their data dependency, they don't have a blind eye to

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Speaker 1: inflation clearly, but I think the needle mover from a

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Speaker 1: reaction function will continue to be on the labor market.

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Speaker 1: So you could have a scenario where they cut more

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Speaker 1: than the one or two that is priced into expectations.

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Speaker 1: I'm not sure that that's universally a positive thing if

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Speaker 1: it comes because of serious deterioration in a labor market.

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Speaker 1: But I think the labor market is what's driving the

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Speaker 1: bus right now.

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Speaker 2: Le Zan. From an earning perspective, we had some really

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Speaker 2: good earnings over the past several quarters here. The third

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Speaker 2: quarter in particular, I think was really surprisingly on the

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Speaker 2: positive side of these v street expectations. Is the current

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Speaker 2: earnings environment enough to support this market here, do you think?

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Speaker 1: Well? Actually, the trajectory of earnings among different cohorts I

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Speaker 1: think is one of the reasons why we have started

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Speaker 1: to see this broadening out. Over the last six months.

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Speaker 1: Only seventeen percent of the S and p's constituents about

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Speaker 1: perform the index itself over the past month. That's up

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Speaker 1: to fifty four percent, and I think it's the differential

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Speaker 1: in earnings growth profile. So if you look at any

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Speaker 1: typical AI megacap cohort MAG seven or maybe a slightly

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Speaker 1: broader AI basket, or even if you just hone in

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Speaker 1: on the tech sector, over the last six to seven quarters,

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Speaker 1: you've seen a pretty meaningful deceleration in the pace of

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Speaker 1: earnings growth. Still strong, earnings growth, still better than the

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Speaker 1: rest of the market called the other four hundred and

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Speaker 1: ninety three. But we're starting to see convergence there because

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Speaker 1: you have the rest of the market seeing an accelerating

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Speaker 1: pace of earnings growth. And I'm always fond of saying

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Speaker 1: better or worse matters more than good or bad, and

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Speaker 1: it's that better in the case of the rest of

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Speaker 1: the market. A little bit worse, though in an absolute sense,

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Speaker 1: still strong. That has been a support for this broadening out,

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Speaker 1: and I think that has legs in twenty twenty six.

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Speaker 3: So Liza and we talk a lot about valuations and

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Speaker 3: value being pretty frothy, But where is there the bargain

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Speaker 3: buy for investors in equities in the new year.

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Speaker 1: I don't know that there's any one monolithic place where

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Speaker 1: you can find a bargain buy. I think that there

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Speaker 1: is value to be found, and that has a lot

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Speaker 1: to do with what's been happening under the surface. You know,

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Speaker 1: there's so much focus on just what the indexer is doing.

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Speaker 1: The cap weighted indexes SMP is up thirty eight percent

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Speaker 1: from the early April closing low on April eighth, but

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Speaker 1: the average member within the smp IS had a maximum

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Speaker 1: draw down of nineteen percent just since April eighth. The

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Speaker 1: NASA's up fifty five percent justince April eight, but the

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Speaker 1: average member within the NASDAQ has had a forty percent

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Speaker 1: maximum draw down. So with all this churn in rotation

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Speaker 1: under the surface, that's where value is being found. I

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Speaker 1: think this is an environment though, where you to bring

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Speaker 1: back an old school acronym where you want to be

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Speaker 1: mindful of value, but you don't want to sacrifice growth.

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Speaker 1: It's very Garpye in terms of the factors. We think

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Speaker 1: you want to focus on.

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Speaker 2: Lizen From a factor perspective, is there anything that screens

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Speaker 2: particularly well for you? These days?

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Speaker 1: Growth oriented factors are doing very well, and I think

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Speaker 1: that is particularly important when you go down the CAF spectrum.

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Speaker 1: So if you look at the Russell two thousand and

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Speaker 1: you break it out between its profitable and non profitable components,

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Speaker 1: the nonprofitable components are outperforming the profitable components by more

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Speaker 1: than double on a year to day basis. And it's

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Speaker 1: even more extreme if you just go back to the

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Speaker 1: April eighth closing low I would absolutely fade that lower

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Speaker 1: quality unprofitable cohort within the Russell two thousand and lean

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Speaker 1: into the profitability piece where you have better fundamentals and

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Speaker 1: you have had the relative underperformance to the unprofitable. So

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Speaker 1: again you want to look at value components, price to book,

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Speaker 1: price to sales. You want strong balance sheet, high interest coverage.

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Speaker 1: But you want those positive earnings trends, forward revisions, earnings

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Speaker 1: expectations being exceeded during earning season. So it's a combination

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Speaker 1: of both value and growth factors.

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Speaker 2: Luziane, thanks so much for joining us. Lazanne Saunders, he's

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Speaker 2: the chief investment strategist at Charles Schwap